Here are 3 steps to get good credit when you have bad credit.

1. The first step is to set a goal.
2. Write your debts down
3. Check your credit report.

Set a goal in your mind.

Many people find this way very motivational. Try it and see if you like it. Close your eyes for a moment. What does it look like in your mind to feel debt free? How do you feel inside? Now, take that image in your mind and put it into words. Write it down.

Next, write all your debts on a piece of paper. I find it helpful to list them horizontally across the paper.

List the creditor, monthly payment, interest rate, annual fee, balance & the due date. You want to make sure you are making all your payments on time and at least paying the minimum payment due.

Choose a strategy to start making payments.

Option one is you can start by paying off the smallest balance first. The advantage of paying off many smaller debts is that you’ll see progress faster and it will feel more rewarding.

The disadvantage of of paying smaller balances first is that you will pay more in interest if the larger balances have a higher interest rate.

The second option is to pay balances with the highest interest rate. The advantage is that you will get rid of the most expensive debt first. The disadvantage is that it won’t feel like you are making progress quickly.

Check your credit report

You can check your credit report for free at annualcreditreport.com. When you are reviewing your information, you want to make sure your personal identifying information is reporting correct. For example, you want to make sure your name is spelled correct.

There are a lot of errors on credit reports. So review it to make sure everything you see is correct.

If you do find an error, make sure you dispute the information.

Next, you will want to review any negative information being reported. Are there judgements, late payments, missed payments, bankruptcy or collections? If so, are they correct?

You will also want to verify there isn’t any negative information being reported that is older than 7 years. If there is, you can dispute that information because it is considered old information. You are still legally responsible for the debts even if they are not reporting on your credit report.

Information that negatively impacts your credit score

Missed payments – 30, 60 & 90 days

Charge offs – when you are informed an account is going to be charged off, you still legally owe the debt. It is not forgiven.

Collections

Bankruptcy

Credit card debt above 30% of the limit. So for example if you have a credit card that has a limit of $1,000, you should not spend more than $300 on that credit card. If you do, it negatively impacts your credit score.

Maxing out credit cards. This means if your credit limit is $1,000 and you spend $1,200 on your credit card you are over the limit and will be charged for it.

Public records

Information that has a positive impact on your credit score

Make all your payments on time.

Having different types of credit, like student loans, car loans, mortgages and credit cards are all examples of different types of credit.

Keeping credit card balances below 30% of the limit

Longevity for payments. The longer you continue making payments it has a positive impact on your credit score.