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5 steps to fixing your credit

By Marc Pearlman

5 steps to fixing your credit

If you leaped to click on this article when you read the headline, chances are good you've endured a few financial boo-boos. The good news is that you are not alone if your credit is a bit bruised. The truth is, debt happens. Haven't I seen a shirt with a similar slogan before? Anyway, back to why you're here.

Credit is an important part of a person's financial picture, but you aren't doomed to a life of purgatory if you have made a few borrowing missteps. However, you will have to prove yourself worthy of obtaining credit again in order to work with most lenders.

Your credit history gives lenders a snapshot of your credit-worthiness, but it is not a reflection of your character. Don't fall into the trap of believing you can't right the ship. Here are some steps you can use to get back into the good graces of the Credit Gods:

1. Look in the mirror

This can be a tough one to swallow, but it is the most important. Ask yourself why you have had credit problems. Was it a job loss or illness -- or just frivolous spending? If your credit problems are due to irresponsible buying, some self-reflection may be the tonic you need to move forward. It can be hard to stop overspending until you address the underlying reasons you do so.

2. Check your credit reports

The three major credit-reporting agencies are Equifax, TransUnion and Experian. Look for negative remarks on your reports from creditors, and assess how you can avoid these mistakes in the future. Also be sure to contact the agencies to dispute any false information that appears on your reports.

3. Apply for a loan

This may sound nuts, but read on before clicking away. Instead of applying for a loan and using the money, simply apply for the loan, never use the money, and then pay the loan back with the proceeds. Yeah, you will likely pay some interest, but you will also gain kudos with the credit-reporting agencies for proving you can borrow money and pay it back. You can also offset some of the interest you pay if you store the funds in a high-yield savings account.

4. Obtain a secured credit card

A secured credit card looks and works like any other credit card, but with one difference: You supply the credit card company with a deposit in the same amount of your credit line. This security deposit is insurance for the lender in the event that you do not pay as agreed. For many credit-wounded borrowers, a secured credit card may be the only credit card they are eligible for. But a track record of timely payments may eventually warrant credit-line increases without requiring the borrower to submit additional security deposits.

But most importantly, the credit card issuer will report your timely payments to the credit-reporting agencies, which will positively impact your credit score over time. This boost in your score will increase your chances of obtaining future credit with better terms.

5. Beware of too-good-to-be-true offers

Be leery of the myriad companies who promise you the world when it comes to rebuilding your credit. There are bonafide people and companies who can help you -- the FTC website has a useful list of things to consider before choosing a credit counselor -- but there are also plenty of scam artists who prey on people who are struggling.

The key here is to do your homework on any entity you enlist to help with your credit problems. If someone promises you a credit solution that sounds too fanastic to exist, it may be because it doesn't.

Marc Pearlman is the host of the Your Money Matters! radio show and operates an investment management business in New York.

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