1. Make a Plan
Get all your credit reports, your bills, and your bank statements out on a table and take a hard look at them. If you don’t have any of these things handy, go online and get a copy of the most recent ones.
Go through that credit report with a fine-toothed comb. Look at the items that are hurting your credit particularly, and highlight any ones that seem wrong or that are having an impact that seems way out of proportion to the offense.
Go through your bank statement and look for expenses you can stop incurring (check out Mint.com). For most people, we recommend finding $150 somewhere in your budget. That extra $150 will make a huge difference in even the worst credit problems, trust us. Look for things like fast food, video games, rental DVDs, iTunes, unnecessary phone fees like texting, utility bills that can be cut down.
For the bills, make a calendar of when things are due. Don’t just go with the due date on the statement; find out when they report to the credit bureaus. That’s when you’re going to want to pay them. If you want to know why this will help your credit, take a peek at our article about the Credit CARD Act.
2. Dispute Inaccurate Items
Remember all the stuff you found on your credit report that seemed off? Go make a ruckus about it. It’s sad, but many companies count on the fact that few people actually go through their credit reports or dispute inaccuracies. This is a squeaky wheel gets the grease situation. Do your best mouse impression.
If you don’t know what you’re looking for to dispute, ask a professional. DO NOT use a credit repair agency that says they’ll dispute everything. This will do way more harm than good, especially since credit companies see that scam coming a mile off. You need someone who can tell the difference between an error and a legitimate mark against your credit. We’re one of those people, but there are others out there. If you have a friend who’s more knowledgeable than you, ask him.
3. Negotiate With Your Creditors
If you’ve been a good customer, you can ask for “goodwill”. Many creditors are willing to erase a late pay if you’ve had a good history. You’ll probably have to make your request in writing.
If you’re past the good history stage and are in collections, negotiate with them. Most collection agencies just want some money. The older the debt, the more willing they are to negotiate.
Be polite, be honest and make sure it’s all in writing.
4. Make Bigger Payments
Paying the minimum balance will keep you in debt for the maximum amount of time. Paying just a little bit more than the minimum will get you out a heck of a lot faster. That extra $150 you found in your bank statement is going to be of help here. Put it to good use paying off credit debt.
Your goal is getting your credit card balances below 30% of the limit. That means if you have a credit card with a $1,000 limit, you want to get your balance down to $300. Calculate one third of your credit card limit and make that your goal. It’s hard, but it’s not as hard as getting it down to zero.
5. Get Another Credit Card
No, seriously. If you don’t have 3 open, good credit cards, you need them. Even if they’re pre-paid cards, you need them. Those good accounts create a counter-balance to your bad accounts. You want the good accounts to outweigh the bad ones, so fatten them up. Make all your payments on time and pay off the full balance every month.
If you have trouble with using credit cards, use them only for small purchases. Make one your card for groceries, another your card for gas. Those are little purchases you’re not likely to overspend on, since you pay the same amount every month. That will keep you from going over the line and blowing $300 on new shoes.
That’s it. That’s the big 5-step plan. Anyone can do it. Most people don’t.
Be one of the ones who does.