Recent statistics show that the average credit card debt per family is $8000, and with the current financial crisis, that number is sure to sky rocket. Faced with rising unemployment rates, and fluctuating mortgages, many Americans are using their credit cards as never before. Credit provides a soft cushion, in case of emergency, but what do you do if your credit is in disrepair? How do you restore your credit and your good name?

Repairing your credit is not an easy process, but it can and should be done. There are many benefits to having good credit. With good credit, banks are more likely to loan high amounts of money at lower interest rates. Banks look at those who have good credit history as a low risk investment, and one that will provide maximum return. This translates to getting the best interest rates on homes, cars, and other types of loans. Good credit also ensures your ability to secure a credit card, or line of credit, with a higher limit and a lower interest rate.

Bad credit is not related only to credit cards. It can also be a result of bankruptcy, unpaid utility bills, bounced checks or rent evictions. Also, slow payment is considered against credit history. Many companies report your consumer history to your permanent credit record, and also use this record to project what type of risk you will be for them.

The first step in repairing your credit is to assess the damage. Once a year, the three main consumer credit reporting companies, Equifax, Experian, and TransUnion, provide a free copy of your credit report. Review your credit report to be sure everything is accurate. By law, any incorrect information must be removed from these reports. It should also be noted that most debts are released from your credit report after 7 or 10 years, depending on the debt. One exception is a student loan, which never leaves the credit report.

The next step in the process is paying old debts. Many debt collection agencies are more than willing to work with debtors, in hopes of recouping some of the money owed. Usually the debt is drastically reduced, sometimes up to 75% of the original amount. The credit report may have the debt collector agency listed on the report, but if not, you can also call the company holding the debt directly, and they will transfer you to the appropriate department. Set up a payment plan, and do not falter on your agreed date. Debt collector agencies definitely report your payment history, usually every 30 days, and this will impact your credit profile.

While paying off old debt, be sure to stay current on newer debt as well. Find a way to repay your old debts while not compromising your new debts. Some financial analysts recommend using cash for all transactions, in order to minimize the temptation to spend. Using cash makes it more difficult to buy on impulse. Consider this method when reducing credit card debt, to avoid incurring more interest.

Finally, avoid paying companies that claim to repair bad credit. Although some companies are legitimate, a vast majority do more harm than good. These companies also charge exorbitant fees to do everything that you can do for free. The best thing you can do for your credit is to take full responsibility over it, and the rewards will be a good credit profile that will make you proud.