In my last post, I wrote about one company’s attempts to change the credit scoring system so that it doesn’t punish people who haven’t borrowed enough money.

But even if the credit scoring system changes, your credit score will still be negatively affected if you’ve missed payments or defaulted on credit accounts, for example.  If that’s the case, you’ll need to take steps to actively repair your credit.  I’ve highlighted 4 of them here.

Step 1: Get a copy of your credit report from each of the 3 reporting bureaus and review each report for errors

The Fair Credit Reporting Act requires each of the three credit bureaus (Experian, Equifax and TransUnion) to provide you with a copy of your credit report for free once every 12 months - if you request it. To order your free report online, visit www.annualreport.com.

Review each of your credit reports for inaccuracies.  If you do find a mistake, your first step should be to send a letter to the reporting agency(ies) reporting the mistake.  The FTC website has a template letter for disputing inaccuracies in your credit report at: www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.htm.

Step 2: Pay your bills on time, every time

The best thing you can do to raise your credit score is to pay your bills on time, every time.  If you’re having a hard time doing that, there are a number of good non-profit debt counselors who can help you - free of charge - figure out how to get back on top of your debt obligations.  To find one in your area, check out the National Foundation for Consumer Credit at www.nfcc.org.

Step 3: Pay outstanding debts

If you have late payments on your record, pay them.  Even if an account has been sent to collections, a “paid” stamp on your credit report is better than an “unpaid” mark (paying the debt won’t erase the collections notation from your record).

If you have existing debts that have become delinquent — late — contact the creditor to set up a repayment plan.  When faced with the choice of renegotiating the payment terms or losing their money altogether if you default, many creditors will choose to renegotiate your terms - making your monthly debt payments easier to manage.

Step 4: If you don’t have a credit card, get one then pay off the balance every month

For now, not having enough credit contributes to a lower credit score.  So until the system changes, take the first step in establishing credit for yourself.  Open a credit card — one that’s secured by cash in the bank if you can’t qualify for an unsecured card — and make modest charges to it (say, groceries and gas) that you then pay off every month.  By using your card and paying it off every month you won’t accrue interest charges but you will begin to establish a positive credit history.

What do you think? Have you repaired a poor credit history?  Click on the “Comments” link and join the discussion!