Bad credit affects millions of Americans.  It doesn’t mean you’re a bad person, or a “dead-beat”, or need to feel guilty about it.  Things happen in life, like losing a job, medical emergencies and other challenges - too many to list.

But the bottom line is, “Every person is the author of their own credit report.”  And many people who get into trouble with their credit, start assuming the worst – then never do anything about it, because they don’t know how to rebuild bad credit.  Ignoring the problem is not going to make it go away.  In fact, it gets worse.  The sooner you start rebuilding bad credit, the better off you will be, so get started today.

How to Rebuild Bad Credit in 5 Steps:

Step 1: Get a handle on the situation. 
The only way you can understand the severity of your bad credit situation is getting a copy of your credit report.  There are 3 different credit reporting agencies.  All may report subtle differences on the information they report, and you need to know everything when rebuilding bad credit.

Download a copy of your credit report right now—includes all 3 credit scores!

Otherwise, you are legally entitled to receive a free (yes, it’s actually free) copy of your credit report once a year from the major credit reporting agencies.  They make you jump through a few hoops, but if you want to save a few bucks you can find them here:  TransUnion Credit Report, Equifax Credit Report and Experian Credit Report

Step 2: Break out “The Highlighter”
Once you get your credit reports it is important to review each of them—thoroughly.  Many people that don’t know about how credit reporting works assume that they do a good job of reporting.  They would be wrong.  In truth, errors on credit reports occur quite often – and rarely in your favor.  You end up being penalized for these errors through higher interest rates, less favorable loan terms, and the list goes on.  Rebuilding bad credit is about taking control of your own destiny.

This means the responsibility is on you to make sure your credit report is accurate.  Take your highlighter and go through your reports marking the different items being reported by each.  Common reporting mistakes include, accounts that you never opened or should not be associated with you, items that are being reported improperly, outdated residential information and items that should no longer be reported (over 7-10 years old).

Step 3: Stop the Bleeding
Once you’ve reviewed you credit reports and found the issues that are causing you problems, it’s important to address them so that you can begin the process of rebuilding your credit.  Your goal is to resolve all of the “black-marks” on your credit report.  Items like unpaid balances, charge-offs and collection accounts need to be “closed” or “settled”, otherwise, they could take years to go away. 

Usually if you contact the creditor they will be open to working with you on a settlement or payment options in order to get your account squared away.  Keep in mind, resolving the account will not make the black-marks magically disappear from your record.  They will stay on your record marked closed/paid, but at least this represents that you’ve taken positive steps to resolve the situation, and can now move forward.
Once you stop the bleeding by resolving your open accounts, the road to recovery begins. In time, (7 yrs / 10 yrs with a bankruptcy) credit issues will be out of your life for good.

Step 4: Make Them Fix the Mistakes
If during your audit you’ve found mistakes on your credit report, you should write a letter documenting the error you have found and what outcome you feel is warranted.  You should send the letters via certified mail to each of the credit reporting agencies in which you have found the error.  If it extends across all 3 you have to send three letters.  The credit reporting agencies should then follow up this the entity in question to resolve the issue and repair the bad credit. 

Under the Fair Credit and Reporting Act, if that entity does not respond within 30 days, they must resolve your credit file to the outcome you requested in your letter.  After writing your letter you should follow up in about a month or two to confirm the outcome of your dispute. Certified letters are a valuable tool when learning how to rebuild bad credit – use them early and often.

Step 5:  Start Back on the Road to Recovery
Once your credit is bad, it can be difficult to build positive credit back on your record.  Lenders will be hesitant to extend credit to you because you are a higher risk.  A secured credit card is usually easy to get and allows you to rebuild your credit. The lenders will issue these types of credit cards more freely because they’re essentially loaning you your own money – with interest and fees! 

You need to maintain perfect history with the limited credit will obtain in order to start rebuilding bad credit.  Want to really know how to rebuild bad credit?  Don’t get into the same type of trouble you did before.  If you’ve made some mistakes, or had some financial issues outside of your control, creditors can be fairly understanding – as long as you work with them to reconcile the situation.  It’s always best to contact a creditor and inform them of your situation, rather than just not paying them.  The worst thing you can be is a repeat or chronic credit offender.  If you’re serious about rebuilding your credit – don’t be one of those people. 

Any financing you get at this point in your recovery will not be ideal.  But as long as you keep with the plan, pay everything on-time, and make sound decisions – in a short time your situation can improve significantly, and bad credit will be a thing of the past. Hopefully these steps give you a good idea of how to repair bad credit on you own.  More severe circumstance may require professional help, but we recommend you start the process or rebuilding your bad credit here.  Good luck.