by Marcy Kennedy

Created on: November 07, 2008   Last Updated: November 13, 2008

Turn on the television or radio or open a newspaper and you'll be flooded with ads by companies offering to improve your credit rating by erasing the negative information on your credit report. Ignore these ads. They're scams. No magic formula for improving your credit rating exists, but you can obtain a great credit rating simply by following four easy steps.

(1) Avoid filing for bankruptcy or using debt consolidation services as these severely damage your credit rating and appear on your credit report for seven to ten years.

(2) Attack any outstanding debts with renewed intensity.

Likely this is going to mean putting yourself on a budget. If you've never written a budget before and don't know where to begin, free forms are available from Financial Peace University.

Paying your bills on time is the best way to achieve a great credit rating. Automatic bill payments take the hassle out. Set them up, and you'll never be in danger of missing a due date again.

(3) Leave paid off credit accounts open/active on your credit report. This shows new lenders that you've paid your bills reliably in the past.

(4) Get a copy of your credit report, and examine it closely for errors.

You're entitled to one free credit report every twelve months from each of the three nationwide consumer reporting companies (Equifax, Experian, and TransUnion). No need to apply to each of these companies individually. Apply once through www.annualcreditreport.com, by calling 1-877-322-8228, or by printing the Annual Credit Report Request Form and mailing it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, Georgia 30348-5281.

If you find mistakes on your credit report, write the consumer report company and request that the information be deleted or corrected. In your letter, detail what specific items you dispute and why. Including photocopies of supporting documentsnever send your originalsand a copy of your credit report with the questioned items highlighted or circled will also help. A sample letter and detailed instructions appear on the Federal Trade Commission website.

You'll want to mail your letter and other documents by certified mail and request a return receipt. This will let you know that it arrived safely, as well as giving you an official record of the date on which the consumer report company received it. Imagine how frustrating it would be to wait the required time after submitting your request only to find out that it hadn't arrived and you needed to start over.

The consumer reporting company is obligated to investigate within 30 days. After they finish, they must forward you a copy of the results and a new copy of your credit report if anything has changed. The updates will also be forwarded to the other consumer reporting companies and, upon request, to anyone who's received your credit report in the last six months. Most importantly, positive changes will be reflected in an improved credit rating.

Creating a great credit rating won't be instantaneous, but if you keep the above tips in mind, it can be done.

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