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Trying to improve your credit can seem impossible when lenders are fearful and you're strapped for excess cash.
But don't give up hope.
"Focus on where you are right now and do what you can with what you have," said Justine Rivero, a credit advisor with Creditkarma.com.
You can make progress—even on old, negative debt — and start to rebuild your credit and therefore, your future.
Here's how to do it step-by-step:
Consider debt counseling.
You'll have to close all your accounts, which will negatively impact your score in the short run, but by the time you've reached this point, you should just be focused on paying off your debts, said Gerri Detweiler, an expert with Credit.com.
Closing your accounts won't lower your score as badly as you might think.
The National Foundation for Credit Counseling maintains a list of member organizations, many of which are nonprofit and provide free or low-cost assistance.
Read on for more tips.
Work with the credit bureaus.
Errors sometimes happen with debts paid after they've gone to collection agency. The bureaus might need to update the debt as "paid in full" instead of deeming it "outstanding."
Other times bureaus forget to take off old defaults or bankruptcies, which should only stay on your record seven to ten years.
If you approach a credit bureau, make sure to send a letter asking to have the debt verified and to update your report.
Beware of shady debt settlement companies.
Don't think you can wave a magic wand and make your bad credit history disappear, said Detweiler.
"Debt settlement" companies promise to negotiate with creditors and lower the principle you owe, but they over-promise and are a waste of money, she said.
If you really need counseling, visit a credit counseling agency.
Fight against debts you discovered after they were passed to a collections agency.
Detweiler said she sees this happen with medical bills and charges from cell phone companies.
While negotiating the item, ask the creditors how they're listing terms on your report. Outstanding debts can read "not paid," "paid in full" or "in dispute," and all reflect differently on your score.
For example, if you make a payment to the collection agency, you might be able to get the status changed to "paid in full" while you make other payments.
If you're four to five months behind on your credit cards, you can also negotiate the principal on the debt, said Detweiler. Reaching a settlement won't improve you credit score per se, but it will help you reach your bottom line (and not get sued).
Invest in a secured credit card.
They'll provide you a current credit reference once all your accounts have been closed because of, say, bankruptcy, said Detweiler.
Just remember the limits are small because they're based on how much you deposit. So if your limit is $500, don't use up $450, which will look like you're using 90 percent of your available credit and put another ding on your credit report.
Detweiler recommends using the card for small, set expenses every week or month, like groceries.
Keep the card active and pay it off on time.
Start paying your bills on time.
This makes a huge difference on your credit score, and has become even more impactful in the last two years, said Detweiler.
"It's one of the most predictive things of whether someone will pay their debt," she said.
The senior vice president of research for VantageScore, a credit scoring firm, told Time's Moneyland that paying your bills on time makes a 50-to-60 point difference on your report.
Don't worry as much about old debt.
The older the debt, the less it affects your credit score.
So if you have two items on record, both of which you'd like to dispute, focus on fixing the newer item. That's the one that's weighing you down more.
The same applies to other black marks like mortgage default or bankruptcy.
Try not to apply for too much credit at once.
Each hard inquiry, or pull of your credit report by lenders, counts against your credit score.
So if you plan on applying for a loan, go for one or two you think you'll qualify for instead of taking the shotgun approach.
Rivero recommended using one of CreditKarma's "credit report card" features which shows what kinds of loans and credit cards people might be eligible for, depending on their history.
Lower your utilization rate.
You should only be using about 30 percent of the credit available to you, said Rivero. Using too much will be a big knock against your credit score.
She recommended either paying down your debts or increasing your available credit to improve your credit utilization.
Keep in mind, applying for additional credit will result in a hard inquiry and slightly lower your score, so don't apply for too much credit from many sources at once.
And if you choose to pay off your debt, pay off the cards with the highest interest rates along with the ones you've already maxed out.
Pick up another loan or mortgage (really).
Lenders want to see you can manage different types of credit, said Rivero, so if you prove you're capable, it will make your future borrowing endeavors much easier.
Letting time pass while you make your payments on time is your best bet for upping your score, said our experts.
Also, know that it's easier to increase a 600 score more than an 800 score.
— Madeleine Scinto
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