Cleaning Up Your Credit Record

Before cleaning up your credit record, you should understand how the system works.

The Fair Credit Reporting Act is designed to promote accuracy and ensure the privacy of your credit information. You have the right to not only see your credit report (sometimes for a small fee) but to dispute unsubstantiated or incorrect listings. Consumer reporting agencies, which gather detailed information on all your credit lines, payments, and outstanding loans, are responsible for contacting the information providers and asking them to substantiate their claims. If the information is not verifiable or found to be inaccurate, the consumer reporting agency has to remove it from your credit record and notify all other agencies nationwide to do the same thing. The three major agencies are Experian (formerly TRW), Equifax, and TransUnion.

The reports produced by these consumer reporting agencies are sold to creditors, employers, insurers, and other businesses. The information includes a credit rating that ranges from 300 to 850, with ratings over 700 being respectable. Surveys show that 40 percent of individuals with credit ratings have scores of 750 or higher. Consumer reporting agencies also list other public information, such as lawsuits levied against you.

Review a copy of your report periodically, particularly if you are planning to buy a home. You can also take several actions to clean up your credit record, including the following:

1. Pay all bills on time: Recent credit history is always more significant than your payment history from five to seven years ago.
2. Pay off as much debt as possible: The wider the gap between your debt and spending limit the better it looks on your credit record.
3. Try not to close too many credit card accounts: If you close accounts after paying them off, you may actually hurt your credit record because of the gap between your debt and spending limits. However, if you are having difficulty with the urge to spend, you may need to close them. It’s better to lose a few points on your credit rating than to go into debt again. Also, don’t open numerous accounts.
4. Pay off any outstanding loans as soon as possible: Student loans are included.
5. Change your personal spending habits: Create a budget, use credit cards less often, and pay bills on time.

Cleaning up a credit report takes time, so be patient. Do not try any quick fixes such as getting involved with places that say they will quickly fix your credit ratings. It usually does not work.