Bad credit doesn't like to be ignored. If you don't take steps to repair your history, the problem will increase in size and scope and eventually deliver a crippling blow to your financial life.

Ever hear a strange noise in your car's engine, like an unfamiliar rumbling or a bizarre squeak? If you do, you have two options: either drown out the sound by turning up the radio, or bring the car into a mechanic. If you choose the latter, chances are that you'll have a much healthier car over the long haul.

A bad credit history is like that noise in your car. If you ignore the problem, your finances could one day endure a major breakdown. Here are some tips for mending your history and changing some bad habits:

1. Start by paying on time.

      Late payments wreak havoc on your credit score. Pay those bills the moment they arrive in the mailbox so you never chance a missed payment. Be particularly careful to pay mortgages and car payments promptly.



2. Cut the clutter in your wallet.

      You really only need to keep two credit cards, so cut up the rest. Pick up one card that has a good rewards program, and carry another for emergency purchases. Anything more than that is difficult to keep track of, and may also serve as a temptation to overspend.



3. Steer clear of bankruptcies, tax liens, and collections.

      These will all appear on your credit report for years. They may not stop you from getting a loan, but you can expect a bank or credit union to charge you a higher interest rate. Be sure that you also clear up any unpaid tax liens, or creditors will lean on you.



4. Re-establish a solid payment history.

      There are two ways to do this. The first is to ask a family member or friend to co-sign for a loan or a credit card. This can be a rather embarrassing exercise, but the responsibility of having to repay someone close to you may help you develop some financial discipline. The second is to apply for a small, secured credit card. The interest rate for unpaid balances will be high, so make sure that you always have enough cash on hand to make your payment.



5. Keep tabs on your credit report.

      Every six months, pull up your credit report and make sure that there are no errors. Not only will this help you maintain the accuracy of your report, but your improving score will serve as an incentive to stick with the program.



It's going to take some short-term pain to improve your long-term financial prospects. Repairing your credit history is not nearly as much fun as spending frivolously. But once you've tuned up your credit history and acquired the spending and payment habits necessary to maintain a good credit score, your finances will run like a well-oiled machine.

Published on July 17, 2007