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How Can I Fix My Credit? (Part One)

A guide to help you repair credit problems as painlessly as possible.

Printed Credit Report with Pen next to it.

Good credit makes the day-to-day basics of navigating life vastly easier. Good credit means you'll pay less for a car loan or a mortgage. It means you typically won't have to worry about coming up with money in case of an emergency. It makes getting a job easier and insurance cheaper. It may even make you more attractive in the dating marketplace.

Given the tremendous benefits good credit bestows, it's more than a little sobering that so many of us don't have it. Instead, we pay more for life's necessities, face the possibility of being passed over for a job and walk a financial tightrope that could snap at the first sign of turbulence. Sometimes this is the result of poor decision-making, and other times life offers challenges that impact our ability to keep our credit clean.

Fortunately, turning bad credit to good credit isn't an impossible task. Even if you've buried yourself in a mound of debt, you can typically fix your credit over time -- if you're willing to do the work.

Let's take a look at how to repair your credit issues in the most effective and least painful way.

The First Step: Gather All Your Information -- and Check for Discrepancies

You can't undertake a systematic overhaul of your credit unless you're armed with all the relevant facts and information. That means you're going to need three copies of your credit report, one from each of the major bureaus. 

Consumers are allowed one free copy of this report each year. Once you have them, go over each line rigorously. Identify any incorrect information present on the reports and make a list of these mistakes. Then write a letter to the credit bureau listing the error and ask to have the mistake removed. Make sure to send a copy of any documentation you have that supports your claim.

Credit agencies have 30 days to follow up on your claims, a period during which they must share your concerns with the entity that reported the disputed information. You can also send a letter to the entity that reported the disputed information, asking them to retract the claim. Either way, the credit bureau is required to investigate and evaluate your claim promptly, then notify you of the result in writing.

Now that you've addressed any errors or discrepancies, you can move on to negative information that's been reported accurately. Here, it's important to consider the timeline involved. Most negative information will remain on your credit report for up to seven years, while a bankruptcy may linger for ten years. The older this information becomes, however, the less relevant it often is to lenders.

Once you've gathered all your documents and made a list of all your outstanding debts (including the age and the type of the debt), it's time to take practical steps to rebuild your credit score. These steps include making arrangements to pay your debts in a timely manner, seeking out new ways to build favorable credit, avoiding "credit fixing" scams from unscrupulous organizations and understanding your full range of rights.

All of which you can read about in the second part of "How Can I Fix My Credit?"