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Is do-it-Yourself Credit Repair a Viable Option?

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"Bad credit" - two small words that can spell a whole lot of trouble when it comes to your financial health. If your financial history is marred by bad debts, delinquent payments, or overused credit cards, it may seem like an overwhelming - and virtually impossible - task to rebuild your credit. But with a few common-sense approaches to debt and credit, getting back on good footing isn't as difficult as you might think.

How Your Credit Rating Works

Your credit rating is a summary of your past financial history, with an emphasis on recent debts and payments. The cumulative report presents all recent financial activity that banks, lenders, potential employers, and landlords can use to predict whether or not you are a good investment.

Lenders rely on the calculation of your credit score - a number that is based on your credit history - to determine how likely you are to repay a loan, credit card, or mortgage in a timely manner. Employers and landlords often use credit ratings to choose the most reliable applicants for jobs or apartments. Just as a bad credit rating can limit you, building a good rating can help you get farther in life.

Toughest Kinds of Bad Credit

Certain kinds of bad credit leave a mark that can't be erased, no matter what you do to improve your rating. Issues such as bankruptcy, credit card debt settlement, and other debt negotiations - such as a mark by a credit card company that your account was settled for less than the full amount - can remain on your credit history for as long as 7 years (bankruptcies can remain as long as 10 years). Even so, if you're committed to becoming more fiscally responsible, it is still possible to drastically improve your credit and boost your score in spite of them.

Simple Steps to Restore Good Credit

  • Pay off your credit cards on time. Every payment you make - or don't make - is noted on your credit history and leaves a good or bad mark. A late payment is better than no payment, but you should make every effort to pay your debts on time.
  • Don't close credit card accounts unless you have an acessive number of cards. Many debt counselors tell people to cut up their credit cards and close accounts once they've paid them off. This may be sound advice to keep people from getting further into debt, but it can actually hurt your credit. Active credit card accounts that you've fully paid off stay on your credit report and show a positive payment history, which can boost your credit score.
  • Use less than 30% of the credit available to you. People who max out their credit cards on a regular basis show "bad credit habits" and look like more of a risk to banks and lenders. By using only 30% of the credit that's available to you, you show that you're more financially responsible.
  • If your credit needs a quick fix, take out a secured bank loan that you don't need, and repay it on time or early. This will show up on your credit rating as a loan paid in full and will boost your credit.
  • Get a copy of your credit report (you can get one free copy per year). Carefully scan your report for errors or fraudulent information. If you find an error you need to write to each of the three major credit bureaus and point out the mistake along with the documentation necessary to prove it is a mistake.

The steps pointed out above are simple things that consumers can do for themselves. If you have tried these things and are still not seeing any improvement you should consider contacting a company or legal firm that specializes in credit repair.

Your credit score can't be improved overnight. It may take anywhere from 3 months to 3 years, depending on how bad your credit is and how quickly you're able to repay bad loans and restore your credit. The good news is, bad credit doesn't have to be a life sentence, and change really can be made in simple, manageable steps.