Can You Fix Bad Credit?

There are few things as annoying as suffering the consequences for doing something you didn’t know was wrong, or something you sort of did know was wrong but happened during reckless, irresponsible phase that totally has nothing to do with the person you are now. But that, as devil’s advocates like to tell us, is life. And it’s particularly relevant when it comes to credit. We know that building and maintaining credit is crucial for your financial health down the line, but what if you’re unhappy with your credit as it stands now—can you do anything to fix it? Well, that depends. Here’s an easy 5-step process for improving your credit.

• Step 1: Get your credit report. Everyone is entitled to one free credit report a year. Go to AnnualCreditReport.com and order one from Equifax, Experian, or TransUnion.
• Step 2: Categorize the negative items. These will fall into two categories: things that are legitimately negative and mistakes. It’s reported that 80% of credit histories have at least one error, and customers find 13 million inaccuracies each year.
• Step 3: Deal with the mistakes. You hear all sorts of absurd stories about people who have a whole credit card on their report that they never even owned, or late payments on balances of $0. In cases of glaring errors, you just need to dispute the claim with the credit reporting agency and be sure to follow up—it’s a hassle but you shouldn’t run into too much trouble. Scroll down on this page for a sample dispute letter.
• Step 4: Try overturning legitimately bad items. Ok, so it’s no mistake—you really did miss that one payment on your AmEx for 30 days. It never hurts to ask for a little forgiveness. In some circumstances, a creditor maybe be willing to waive or remove a negative item if you’ve been an otherwise excellent customer. (There are many “credit repair” companies out there, but as Consumerist points out, they are not miracle workers. They will basically just file the necessary paperwork and lodge complaints for you. You can do everything they do yourself, and that way you won’t have to waste any money or risk getting scammed.)
• Step 5: Forget about FICO (well, not completely). Not pleased with your FICO score? There are alternative credit scores out there, including an interesting one called PRBC that helps you build credit through paying rent on time and doing other responsible things that aren’t included in traditional credit scores. As Consumerist notes, “These alternative scores won't be able to magically turn a 400 into an 800 (what do you think they are, investment bankers?), but they can give a more accurate picture of a borrower who has very little information reported about them to the bureaus.”

If you do have a few bad items on your credit report, don't get too freaked out about it. You're young and you have a lot of time to build up your credit. You can't get rid of these things overnight, but they don't stick with you forever.