The 5-step Process of Turning Your Bad Credit Good

With almost 100% of the homes purchased in the United States being purchased with mortgage financing and a tightening credit environment, it's more important than ever to have great credit. All mortgage lenders use your credit score as the basis for making a lending decision, so if you have bad credit your chance of being denied is high. Bad credit borrowers also receive loan terms, rates and conditions that are not as favorable as those offered to good credit borrowers. Now is the time to do what you can to turn your credit situation around. Use this 5-step process to turn your bad credit good and you'll be well on your way to home ownership.

Step 1. Find out what's bringing your credit down.
The first step is to pull your credit report from the three major credit reporting agencies—TransUnion, Experian and Equifax. Usually on the first page, there is a section that highlights negative items that are showing on your credit report. This includes late pay accounts, collection accounts, bankruptcies and charge-offs. There may be items showing here that you aren't aware of. Any negative items that are being reported are the ones that you need to focus on correcting in order to increase your credit score. Order your credit report from each agency today by visiting www.transunion.com, www.experian.com and www.equifax.com.

Step 2. Scour your credit reports like there is no tomorrow.
When you receive your credit reports, make sure to review the information very carefully. While negative items are usually listed separately and in one area, it's important to go line-by-line on each credit report to look for any inaccuracies. Mark or highlight the inaccurate items or items you need to address in order to increase your credit score. Be sure to do this for each of the credit reports because information may vary from credit agency to credit agency.

Step 3. Write a dispute letter to tackle to inaccurate items.
First, you want to address the information showing on your credit reports that is inaccurate. Write a letter to each agency addressing each inaccurate item. Fully explain why the information is inaccurate and why it should be removed from your credit report.

Step 4. Tackle the negative, but accurate items.
If you've earned bad credit the honest way by making late payments, not making payments at all, and having your accounts sent to collection agencies, then it's time to face the consequences. Call the creditors, lenders and collection agencies (the numbers are usually on the credit report) and talk with them to see what you can do to make your wrong right. You may be able to work out payment arrangements with them to bring the account current. Some will even discount the amount you owe if you agree to pay it off in-full. When you are able to make arrangements be sure to get everything in writing. Also, make sure that whatever arrangements you make with the creditor that you to stick to it.

Step 5. Follow-up to ensure negative items and inaccurate information is removed.
When you dispute inaccurate information, the credit agency will automatically send you an updated credit report if the information is changed or the negative items are removed. If you do not receive a new copy, then request one. Make sure you follow-up on your disputes and the outcomes. As the negative items start to disappear from your credit report, your credit score will go up. And a higher credit score improves your chances of getting approved for any type of new credit or loan, but in these days and times, it especially helps with home mortgage loan approval.