Amanda's Note: This was provided by an online contact.
You may know all too well the effects of bad credit. Collection agencies call you all day, and credit card interest rates skyrocket, compounding your debt each day. Take action now and review these tips to repair your credit.
Check Your Credit Report
Image via Flickr by cafecredit
Before you can fix your credit issues, you need to know what's on your credit report. Visit annualcreditreport.com to get a free copy of your report. Request a combined report that includes information from all three credit reporting agencies. You can request a free report once a year and pay for additional reports if needed.
Look for derogatory items such as late payments, charge-offs, and collections. Dispute any errors you see on the report with the credit reporting agencies. When you submit a dispute, the reporting agency will contact the lender and resolve the issue.
Accounts that are in collections or have been charged-off can destroy your credit score. To avoid these actions, sit down and examine your budget. Trim expenses that are not essential, such as dining out or clothes shopping. Use the money you save each month to pay down your debt.
Prioritize the bills that are in danger of being charged-off. Make payments and get your accounts current. Send in future payments on time and pay more than the minimum due if possible. It's essential that you pay any tax bills on time also.
The IRS can impose a bank tax levy on your assets when you owe back taxes. In this situation, the IRS uses a levy to seize your assets, and your property may be sold to satisfy the tax debt. If you receive an IRS collection notice, call the IRS immediately to help stop a back tax levy.
Negotiate Credit Card Rates
Paying your credit card just one day late can send your interest rate soaring. Get your payments current and contact your bank to see if they will remove the penalty rate. Watch your available credit limit also. The credit score is affected by how much available credit you use at one time. The ratio of your available credit and outstanding debt is called your credit utilization.
Aim for 50% credit line utilization or lower. If you have credit cards with credit lines that add up to $20,000, getting your balances down to $10,000 or lower can raise your score. Do not apply for new credit now, however. Multiple credit inquiries can hurt your credit rating too.
Rebuild Your Credit
When old accounts are current, and your credit score starts to improve, it's time to focus on rebuilding your credit. If you have trouble getting new credit, consider opening a secured credit card. Make sure to make all of your payments on time.
Poor credit doesn't have to affect your finances forever. Focus on any accounts headed for collection or charge-offs. Work to slash your budget each month, so you have money left over to make extra payments. While you'll have to make some sacrifices, you'll be happy to see your credit score improve over time.