In today’s credit-driven economy, it is critical for a borrower to have and maintain positive credit history. Individuals with problem credit may find it extremely difficult to qualify for loans, obtain credit cards, or even rent an apartment. In addition, many employers even use a credit check during their pre-employment screening process. It is therefore very important for the individual with problem credit to do all that he can to improve his credit standing.

The first step that someone with problem credit needs to take is to determine what exactly is causing the negative credit report. There are three main reasons for problem credit:

1. Little or no credit history
2. Erroneous information on a credit report
3. Derogatory information on a credit report

The borrower with little or no credit history should develop a plan to build credit history as soon as he can. The easiest way to do this is usually by applying for a credit card. If a traditional bank credit card is not obtainable, the borrower should look into a secured credit card. A secured card is a credit card that is backed by a security deposit from the card holder.

Many credit card providers also allow for the use of a co-signer. A co-signer is someone who agrees to be financially responsible with the primary user on the account. Often times the presence of a co-signer is enough to enable someone with little or no credit history to qualify for a credit card.

Those unable to qualify for a bank-issued credit card should consider applying for a store credit card. Store credit cards often have less stringent qualification requirements than a bank issued credit card, although the interest rates and terms may not be as favorable. Whether a borrower obtains a bank credit card, a store card or both, it is critical that he consistently pays his bills on time. It is also recommended that the borrower not accumulate any unnecessary debt.

Borrowers with established history should obtain a copy of their credit report regularly. In the United States, the Fair Credit Reporting Act (FCRA) and the Fair and Accurate Transactions Act (FACT), allows borrowers to receive one free copy of their credit report from each of the three credit bureaus every 12 months.

The individual who finds mistakes on his credit report should contact the credit bureaus and the creditors in writing. This starts an investigative process to confirm whether or not there is a legitimate mistake. If there is a mistake, the creditor must notify all credit bureaus to remove the information from the credit report.

The borrower with problem credit due to derogatory history such as bankruptcy, foreclosure, repossessions, unpaid taxes, and accounts in collections should seek to re-build positive credit history as soon as possible. Here are some tips to follow:

• Develop a plan to pay off any delinquent balances and collection accounts as soon as possible. Consider reducing spending in some areas to allocate more funds to pay off outstanding bills.
• Contact and negotiate with creditors. Many creditors are willing to work with borrowers and may offer payment arrangements and reduced monthly payments.
• The borrower who must close accounts should close the newest one first. Length of credit history is a large component of an individual’s credit scoring.
• Don’t close accounts all at once. Any large changes on a credit report can often be viewed negatively. Instead close accounts slowly, over time.
• Don’t close all credit accounts. Credit scoring factors in the ratio of total debt versus available credit. Closing all accounts can negatively impact an individual’s credit score.

Repairing problem credit typically takes some time and effort but it can be done. In a credit-driven economy, the results of repairing credit are well worth it.