Having excellent credit means you get the best rates for credit cards, mortgage and other loans you may need. Whether your credit has a few blemishes, or some major problems, you’ll want to tune it up.

If may take some time to work out all of your credit problems. And the road to excellent credit is paved with obstacles and frustrations. But there’s nothing a “credit repair” shop can do for you that you can’t do for yourself for free. Here are some steps you should take:

  1. Take stock of your current credit situation. Start by ordering a copy of your credit report ($8 each) from each of the three national credit reporting bureaus, Experian (888-EXPERIAN), Trans-Union (800-888-4213), and Equifax (800-685-1111). While you’re waiting for them to arrive, start calculating how much you’re spending on fixed living expenses and debt payments.

  2. Scrutinize your credit report. Once your credit reports arrive, look them over for errors. If someone else’s debt has been posted to your account, dispute it. If you are listed as delinquent on several accounts, and you’re current, provide copies of recent statements and canceled checks as proof. Look for other problems: too many credit inquiries, too much credit, or other inaccurate information. If you have a joint credit account and your partner has a credit problem, it could become your credit problem. If you lent your signature (co-signed a loan), and your partner is paying debt late (or not at all), you and your credit could be in real trouble.

  3. Fix your credit history errors. Write letters to your creditors (send copies to the credit reporting bureau) and enclose documentation that supports your claims. To receive a brochure and sample letter on how to dispute faulty credit bureau information, write to the Federal Trade Commission, Correspondence Branch, Washington, DC 20580. The process of fixing credit errors is time-consuming, despite the fact that agencies must address disputes within 30 days.

  4. Pay off your debt. One of the fastest ways to fix your credit is to pay off, or at least pay down, your debt as quickly as possible. If you’re applying for a home loan, paying down your debt before you apply will make you a much stronger candidate.

  5. Freeze your credit cards. If you’re a spendaholic, you’ll want to make using your credit cards as difficult as possible. You can cut them up, or put them in a bucket with water and freeze them. Don’t put them in places where you might forget. A shop-a-holic in New Mexico put her credit cards in a purse she didn’t use in the closet, and then gave the purse away. Someone bought the purse at a thrift shop, took the cards, and charged $5,000 in purchases before getting caught. When she got the call from the credit card company, she didn’t even realize her cards were gone.

  6. Cancel unused cards. As we’ve already discussed, too much available credit can sink your credit history. Cancel these unused accounts — in writing — and then ask the company to send you a confirmation that the account has been canceled.. A few months later, double-check to make sure the cards have been removed from your credit history and not just labeled “inactive.”

  7. Know when you need professional help. If you’re finding it difficult to create a workable budget, or put together a workout plan with your creditors, consider getting some free or low-cost professional help. The nonprofit Consumer Credit Counseling Service, which has hundreds of offices spread out all over the U.S., offers free or very low-cost credit, debt, and budget counseling. Call the CCCS toll-free number (800-338-2227) for a referral to the office closest to you. One caveat: CCCS is funded by credit card companies and institutional creditors and may have a slight bias in its counseling. For example, CCCS may urge you to settle on a workout plan rather than suggest bankruptcy, even if bankruptcy might be in your best interest. But a counselor will work with you to come up with a budget with which you can live, and may even have some leverage in getting creditors to accept what you’re offering.

  8. Beware credit repair companies. If someone offers to fix your credit for a fee, run the other way. If someone offers to "erase" your bad credit history and give you "brand new grade A credit instantly," run even faster, then call the nearest Federal Trade Commission office to report a fraud. Credit repair companies will charge you a fortune (even up to $1,000) to fix your credit, but they can’t do anything you can’t do for yourself — for free. Don’t think anyone can wipe your credit slate clean. Only bankruptcy can erase your debts — and then the bankruptcy stays on your credit history for up to 10 years.

  9. Make sure your workout payments are correctly reported. After going through the hassle of setting up a workout schedule with a creditor, you don’t want that creditor to report that you’re not making the minimum payment. Be sure your workout payments are correctly recorded as paid on time and in full, so that your credit history improves.

  10. Get a secured credit card. Whether you’ve been through bankruptcy or had to cancel all of your credit accounts, you’ll want to rebuild your credit history with a secured credit card. With a secured card, you put anywhere from $500 to $5,000 into a bank account and the bank issues you a secured card for the amount deposited. You may “borrow” up to the level you have deposited, and as long as you pay it back on time, you will start to rebuild your credit. Eventually, the bank will offer you an unsecured card, which means your credit is good enough to borrow without pledging any money. It’s a big step forward.

  11. Consolidate your debt, if you can. If you consolidate your debts with a home equity loan, you’ll be able to use tax deductible money with a lower interest rate to pay off high-interest rate, non-deductible loans. That’s the best situation. If you don’t have any equity, or don’t own a home, you’ll want to consolidate your debt on a different credit card to take advantage of superficially low “teaser rates.” These rates are very low for 6 months to 1 year. At the end of that time, the rate bumps up. If you keep consolidating your debt every six months (before the rate changes) and use the difference to pay down the balance, you’ll pay it off much more quickly than if you just pay the minimum amount each month.

  12. Keep your job. Many folks don’t realize that their employers are often listed on their credit history. Holding a job for a long time looks much better to a prospective lender than someone who switches jobs every six months. Stay with your employer for awhile. Job stability can only help your credit situation.

  13. Pay your spousal and child support on time. It won’t help your credit report if you’ve made every Visa payment on time and in full, but have avoided paying spousal and child support. Remember, court judgments and tax liens are also listed on credit reports.

PERSONAL FINANCE TIP: Divorce can be horrible and an angry ex-spouse can easily inflict lasting damage on his or her ex-spouse’s credit report.

If you are considering divorce, consider canceling all credit cards and accounts held jointly. Otherwise, if your spouse starts to spend and then refuses to pay, the creditors will come after you. Even if the court says your spouse must pay his or her share, or is responsible for certain bills, as long as your name is on the account, you’re stuck.

Here’s an unpleasant thought: You may have to pay off the whole bill just to save your credit history.

Oct. 17, 2003.