Steps to Rebuild & Repair Credit

Here's seven steps to repair your bad credit...

Poor credit affects every aspect of your financial life including the interest rates you pay, employment opportunities and whether or not you qualify for loans and mortgages. Working to repair your credit is one of the most important financial decisions you can make.

Here are 7 steps to rebuild / repair your credit:

1. Understand how you damaged your credit. The first step in solving your credit problems is to figure out how you got there in the first place. If your issues started in college because you spent too much and couldn't pay your bills, this is an indication that you need to establish a budget to control impulse spending. Or, perhaps an unforeseen emergency caused the crisis and you need to put a safety net in place for unexpected emergencies. Understanding your role is the only way to correct the problem.

2. Determine your current income and expenses. To correct a bad credit situation, your income must exceed your expenses. If this is not the case, it is imperative that you cut your expenses to get back on track. This should be the first step of your budget or financial plan.

3. Check your credit report. To gauge the damage done to your credit, check your credit report with all three credit bureaus since different creditors report to different bureaus. You can get a free credit report from each of the reporting companies, Equifax, TransUnion and Experian by visiting AnnualCreditReport.com or by calling 1-877-322-8228.

4. Take responsibility for your debt. Your integrity is at stake when you fail to pay creditors. Regardless of how old the debt is, contact the companies you owe and work with them to come up with a payment plan that you can live with and honor. Don't ignore your creditors.

5. Be involved in your credit report. If there are extenuating circumstances that may help explain your current credit problems, request to post a comment in your credit report. Unexpected emergencies are valid reasons for some bad credit situations and can make a difference in whether or not a creditor approves or denies your request for credit.

6. Create a financial cushion for unexpected, emergency situations. No matter how much you make, make a commitment to deposit a specific dollar amount each month into an 'emergency' account. Your goal should be enough expense money to cover at least 6 months.

7. If necessary, find a credit counselor. The process of rebuilding your credit takes patience and commitment. If you don't feel knowledgeable enough to prepare a game plan, consider hiring a credit counseling service. These companies provide assistance in building a budget that you can stick with and will work with your creditors to help you pay down your debts. There are also many nonprofit groups that offer help. In addition, you can check with your employer, bank, credit union, or credit repair company to investigate options for no-cost or fee-based credit counseling programs.