Credit Repair DIY: 8 Steps to Improve Your Score

So your credit is already a mess? You're not alone: Nearly one third of Americans have a sub-prime credit score and are in need of credit repair help. Let's face it. Your credit report is important. It determines whether you can get a credit card, a home loan, a car lease, a mobile phone plan. Some employers even use your credit report as a criteria in determining whether to hire you or not.

Don't worry, there is a lot you can do yourself to fix things up.

1) Cut up your credit cards so that you won't succumb to the temptation to use them. Damage control. Yes, it may sound harsh to you, but for now, don't buy anything you can't pay for with cash or a debit card.

2) Assess. Sit down and make a spreadsheet of what you owe and to whom. Include past due amounts and time frames.

3) Create a payment plan. Figure out what you can afford to pay each month towards all of your bills. Your rent or mortgage payment should account for no more than one third of your monthly salary. Break down from this figure how much you can reasonably send each month to each creditor.

Breathe! Next comes the fun part!

4) Chat time. Start calling your creditors. This is the fun part, because creditors are used to having to make the calls. If instead you call them, you are in a very good position in this game. (If you do view this as a game, it can actually be enjoyable. Give yourself goals, make it a little competition, and remember that collections agents are opponents to be sweet-talked or outwitted)

You really have a lot of power here, because you are taking the initiative and they will NOT want to lose this opportunity. Because of this, you can request reduced fees and better terms. Explain that you want to pay them but need to renegotiate the terms of your account in order to do so. If the account is already closed or very past due, (in which case they would have NEVER expected you to make this call), you may even be able to reduce the actual amount due. A friend of mine succeeded in getting one bill down to 17 cents on the dollar!

Be conversational; these people are used to being told off, lied to, or just plain avoided all day long. Treating them with courtesy can put them in a better mood, and thus put you in a better position to get what you want. Be polite but firm, and get the agreement from them in writing, including a promise to clear the bad mark on your credit report. File the written agreement away with your credit report and enter everything on your spreadsheet so you can follow up. (You DO have a folder for all of this, don't you?). Put a check mark next to that creditor and move on to the next. And, once you've reached agreement with your creditors, keep your word and honor the agreement.

5) Automate. Set up online bill pay with your bank. Virtually every bank in the world now has online banking, and you can set up electronic bill payment for free. Set up monthly payments for all of your creditors, and while you're at it, set up a monthly transfer of 10 percent of your income to a savings account that you don't touch.

6) Wait. Maintain. Once you've set the whole process in motion, you simply have to wait. Meanwhile, you can get your finances in order by keeping track of what you spend each month. (This will be another spreadsheet). Make columns for entertainment, eating out, clothing, gas, groceries, etc. This will help you see where your money is going. Use cash or a debit card to make all purchases, and don't forget to record even the small ones, such as Starbucks runs, as the little things add up and are sometimes the worst offenders of all.

7) Reassess. Gauge your progress. After a couple of months have passed, order a copy of your credit report. Check to see that paid off items show as such, and that everything shows as current. If you see anything erroneous on your report, you have every right to dispute it by contacting the credit bureau directly, either by mail, phone or online.

8) Rebuild. After six months or so, your credit rating should be improving. At this point, you can either get a secured credit card or an American Express (the green one which requires you to pay it off each month) in case you need to make a purchase online. This will train you to only spend what you can afford. Continue to pay yourself ten percent of every paycheck, as improving your credit alone will not help you if you have no financial cushion. Remember, your credit is only as good as your ability to pay, and fixing up your credit report should be just part of an overall plan to improve your financial situation (Next step will be investing!). And, don't forget to applaud yourself for taking charge of your finances!

For a free six-part report on credit repair, rebuilding and debt settlement, visit repair-my-credit.org.