If you just got the news that you have bad credit, you have the right to see your credit report and the right to challenge what it says. And it won't cost you much to do so. You can get free credit reports from nonprofit credit help agencies.

Getting a bad credit rating may feel discouraging, but here's the good news: You can change it.

Your credit rating is also known as your credit or FICO score. It is a number assigned to you by financial institutions based on your history of paying your bills and loans on time.

Lenders will generally look at your FICO score to decide whether you are likely to pay back loans in the future. Your FICO score determines whether you will pay high or low interest on any kind of loan. This loan might be a credit card, a car loan, or a mortgage. A low FICO score may result in being turned down for a loan.

Landlords also usually run a credit check on potential tenants. They can refuse to rent to people who have bad credit.

More and more employers are asking to check job seekers' credit reports. This is a legal request, although you have the right to refuse. Unfortunately, some employers may not hire you as a result. If an employer decides not to hire you after a background check, federal law requires that you receive a copy of the report and an explanation of your rights. If there are errors in the report, including credit rating errors, you can—and should—notify your potential employer.

Your credit rating is based on various types of information in your credit report. Your credit report might include the following information:

• Personal information. Your name, current and previous addresses, birthday, Social Security number, and even the names of your current and former spouses.
• Credit history. This includes the names of accounts you have, such as credit cards, utilities, and loans. It includes the date you opened the account, the balance, how often you pay, and whether the account is paid on time. Old accounts that have been paid in full may still be on the report as well.
• Public records. Collections, bankruptcy filings, foreclosures, and court judgments requiring you to pay money also appear on your record. Other types of public records, such as traffic violations, do not.
• Requests for credit. Any lender that has asked for your credit report recently will also be listed.

You have three ways to find out about your credit rating:

• If you have recently applied for credit, you can ask your lender for a free copy of your credit report within 30 days of the application.
• The second approach is to ask for your credit report from the three agencies that keep track of your credit rating. These companies are Equifax, Experian, and Trans Union. Federal law states that you can get one free credit report from each agency every year. Your score and the information can vary among the agencies, so ideally you want to see them all. The agencies have set up one website (www.annualcreditreport.com) and phone number (877-322-8228) that you can use to get them. You may order all three at once or stagger them throughout the year. You will need to give your name, Social Security number, date of birth, and recent addresses. It is illegal to ask for anyone else's credit report without their permission. After your free reports, you may have to pay for additional copies.
• The third method is to sign up with a credit monitoring program that will give you reports about activity in your credit history. This is especially helpful if you have been the victim of identity theft. You typically have to pay an annual fee for this service.

If you have a bad credit rating or if you find errors in the reports, you can take several steps to correct the situation. A guide from the Federal Trade Commission offers many tips. Below are the basic steps you can take.

By some estimates, 1 in 4 credit entries is wrong. Check each entry on each report to make sure of these things:

• The debts listed should all belong to you. Incorrect items can come from identity theft, when someone else creates debt in your name. They can also come from debts belonging to an ex-spouse or mixed-up records.
• The payments you've made are correctly recorded. For example, you might find entries that say you didn't pay a bill or pay off an account when you actually did.
• The debts listed are timely. Debts more than 7 years old have to be removed from your credit report. Most bankruptcies stay on your credit report for 10 years.

You have the right to request paperwork showing that debts on your credit report actually are yours. You can take several steps to do this:

• Send a letter to the lender reporting the debt and ask for proof that it is your debt. Proof might be your signature on a credit application. Send an additional letter to the credit agencies, letting them know which accounts you are challenging. Lenders and credit agencies have 45 days to investigate your request. Keep good records of all communications.
• If the lender can't provide proof that it's your debt, ask the lender to notify the credit agencies of that fact. Send a copy of the lender's letter to the credit agencies yourself, asking that the account be removed.
• If debts exist because of a divorce, send credit agencies and account holders any legal paperwork regarding the divorce and the division of debts.
• Ask for debts 7 years and older to be removed.

You don't want outstanding collections or court judgments to linger on your credit report. Make a plan to pay them off as promptly as possible, and then contact the credit agencies to have them removed.

It's never too late to get back on track. Try to pay any bills you currently have on time. You may want to automate your payments to save yourself some headaches.

Addressing all the account information on your credit history and making a plan to pay off outstanding debts is a lot of work. You might want to get help from an agency that specializes in getting people through this process. If you need help finding an agency near you, contact the National Foundation for Credit Counseling (or at 1-800-388-2227).

Here is the contact information for the three rating agencies:

• Equifax: P.O. Box 105873 Atlanta, GA 30348 www.equifax.com 888-378-4329
• Trans Union Consumer Disclosure Center: P.O. Box 1000Chester, PA 19022 www.transunion.com 800-916-8800
• Experian: (TRW) P.O. Box 2104 Allen, TX 75013-2104 www.experian.com 888-397-3742

Make sure to keep exact notes about your efforts to work with the credit rating agencies. Keep copies of all letters or paperwork you submit, the response from the agency, and notes on any phone calls that you have to make, including dates, times, and the names of the people you spoke to.

Building better credit may take 6 months to a year or more. Besides paying bills on time, it helps to not charge more than 30% of your credit card limit at any given time, not to open new accounts just before you ask for a loan, and to keep your credit cards open even after you pay them off. This helps you have a longer credit history.