Five Simple Steps to Fixing Your Credit

Let's be honest. Some credit problems are complex, and require sophisticated solutions that may take months or years to have an impact. But, if you have just a few blemishes on your credit report that have lowered your credit rating, then there are some immediate actions you can take.

Step #1: Start paying down your debt. Set aside some money every month to pay off more of the balance you're currently carrying on your credit cards. Even if it means not taking a vacation or eating meals at a restaurant less often, the more extra cash you can apply toward your debt right now the better. But, don't pay off your cards each month-it's actually better to leave a little balance so the lenders know you can handle credit.

Step #2: Get copies of your credit reports. All three of the major credit bureaus must, by law, provide you with a free copy of your credit report each year. This is your chance to look for inaccurate or outdated information and get it removed. Any new lender (and some insurance companies and even potential employers) will order a copy of your credit report before doing business with you, so you want your report to be as glowing as possible.

Step #3: Pay your bills on time. After you've gone to all the trouble of cleaning up your past credit hassles, please don't create new ones! It's more important than ever that you pay every bill on time. Just one "late-pay" reported to the credit bureaus will undo all the good work you've done, and your credit score will suffer as a result.

Step #4: Increase your line of credit. If you add together all the credit limits offered by your lenders, you'll have your line of credit. There are a couple easy ways to raise your credit limit. Try simply calling some of the credit card companies with whom you've had an excellent payment history and ask them to raise your credit limit. You'd be surprised how often that works. You can also secure one or two new sources of credit, but be careful. You don't want to litter your credit report with too many new credit cards (lenders get suspicious), or tempt yourself to buy more than you can afford.

Step #5: Pay with cash. Once you've gotten your finances under control you can keep them that way by paying with cash. That ensures that you're not spending money you don't really have. Living on a "cash and carry" basis might well mean a better standard of living down the road. I know what you're thinking... where does all this cash come from? See step #1 above. In may be painful in the short term to forgo your vacation or that new HDTV, but in the long term it's the really big purchases, like a home or car, that will benefit from your better credit rating.

If you're considering getting a new mortgage or car loan in the next year, now is the time to start fixing your credit. Every bit of negative information you can get erased from your credit report will help raise your credit score and lower the interest rates you'll be offered. Get busy!