Life is unpredictable. We might get into situations we hadn't planned for. Job loss, medical emergencies, divorce, or just living beyond our means can get us into financial trouble.

No matter what causes our bad credit, it can prevent us from getting that mortgage or auto loan that we really need. It takes time, money, and discipline, but bad credit can be repaired.

First, you need to know what is on your credit report.
There are three major credit reporting agencies; Equifax, Experian, and TransUnion. Some creditors will only report to and check with one or the other, so you need to get reports from all three to get a complete record of your credit history.

You are entitled to a free credit report if you experience any negative action due to your credit, including being denied credit, insurance, or employment, as long as you request the report within 60 days of the denial. You are also entitled to a free annual report from those agencies whether you've been denied credit or not.

We should all be concerned with the threat of identity theft, so everybody should take advantage of this to be aware of what is on their report. Don't request this annual report from the agencies individually, you must request the free annual report at www.annualcreditreport.com .

Check your credit reports carefully for any false information, whether negative or positive reports. If you have a common name there may be someone else's information on your report. There may be information on the report that is simply not accurate. It's possible that an ex-spouse or other person has fraudulently opened an account in your name.

If there is any information on your report that is not true, report those items to the credit bureau. They are required to remove the discrepency while they research whether it is accurate or not. If it is found to be inaccurate it will stay off the report, and if it's found out to be true they will put the information back in your file.

Once you've cleared up any false information in your report, it's time to start repairing your bad credit.
You have probably heard of agencies who can fix your credit, but they can't do anything you can't do yourself. If you're willing to do the legwork yourself, you can save the fees they would charge and use that money toward paying down your debt.

Contact your creditors or the collection agencies and explain that you want to pay your debt and improve your credit rating but you need them to work with you. Some will agree to reduce your monthly payment, but this may not help if it just increases the total interest paid, since you may end up paying more in the long run and staying in debt.

Some creditors, and especially collection agencies, may agree to take a much smaller total if you pay it in one lump sum, especially if it's been a long time since you've made any payments at all. If they have not received any payment from you at all in a year, and you all of a sudden call and say you want to pay your debt, they might agree to take half of what you owe and call it even. Otherwise they would just write it off as a loss and figure they'd never get a penny out of you.

If you want to pay lump sums to creditors you haven't paid at all for a while, don't contact them until you are able to offer payment. If they agree to accept a lower amount, they usually give you a time limit, maybe 30 to 60 days. You don't want to work out an agreement and not make good on it a second time.

Whatever arrangements you make with them, let them know you are trying to clean up your credit and you will pay as long as they report it to the credit bureau as paid. Most are happy to do so, but check your report later to make sure it shows up as paid. Experts suggest getting it in writing before you pay.

While you're paying down your delinquent accounts, make sure you keep up with your other accounts. You don't want ALL your creditors to report you as a late payer. Pay down your high-interest accounts as quickly as you can afford.

If you have a low interest credit card or bank line of credit, see if you can transfer high interest accounts to those and stop using the high interest accounts. You didn't get into debt this deep overnight, and it's a long road to get out. Take one step at a time and you'll feel a sigh of relief as each negative mark on your credit is resolved.

Bankruptcy is a last resort.
It's always better to pay your debts - creditors like to see that even if you come across hard times you still make an effort to pay them what you can. Sometimes, though, your debts may be so high that you will never be able to get out. Extreme situations can bury hard-working, honest citizens in a mountain of debt.

Divorce, medical bills or bad investments may have financially ruined you. Bankruptcy may be an option for you. It will stay on your report for 10 years. Yes, it's the worst thing that can be on your credit report, but it also gives you a chance to wipe the slate clean and start all over.

It takes time to overcome a bankruptcy. Lenders may not even consider you for a year or two, but once you've re-established your credit, it won't be too hard to get the credit you need. Many people can get a mortgage within a few years after a bankruptcy if their new credit history is impeccable. So if there is no other way out of debt, this may be your best option. Talk to a good bankrupcty lawyer to figure out if this is something to consider.

Once you've gotten your credit back on track, it's important to keep it that way. Draw up a budget and stick to it. Stay in control of your use of credit. Don't get caught in the minimum payment cycle. Make all your payments on time. Throw away those tempting invitations for credit that you don't need. Keep a game plan and take control of your financial future. Establish good credit and new doors will open for you.