How to Start Repairing Your Credit

At some point in many people's lives, we've had a period when we may not be able to keep up with our bills and credit cards, and we damage our credit scores. However, you can start rebuilding your credit by taking these few important steps.

The first and most important thing to do is to get a copy of your credit scores from all three credit reporting agencies-Experian, Equifax and Transunion-at AnnualCreditReport.com. Every year you can get one free copy of your credit report without doing any damage to your credit report.

Review the report not only for your score, but also for any outstanding bills or other debt issues that have a negative impact on your credit. These include having a credit card near or over your balance limit, any missed bills, old creditors (like the credit card you got as a freshman in college or the cable bill from five years ago), or the collection agencies they hired to recoup their losses.

Contact each of your creditors. Tell them about your situation. They may work with you to reduce the amount you owe or allow you to set up a payment plan. Alternately, you can contact a non-profit money management program accredited by the American Association of Debt Management Organizations. They will contact your creditors on your behalf and enroll you in a repayment plan based on your salary and ability to pay.

The next step is cutting those existing credit cards up. I know its tempting to use them, but you've got to give them up. If you're already in trouble, keeping those lines of credit opened up will only lead to more problems. And if you're near or above your limit, it's already hurting your credit score.

If you're doing this on your own, ask your credit card company to freeze or suspend your line of credit. At the same time, they may be able to lower your interest rate, especially if you agree to a repayment plan either through the bank or a third-party money management organization.

The next step is to start repaying everything. By making your monthly payments, you'll start reducing your debt and improving your credit score. However, it's not instant. It can take years to rebuild your credit, but the sooner you start, the sooner it starts getting better.

-Chris Meehan