Even borrowers who've diligently paid their bills on time may run into credit headaches because of faulty reporting by a credit agency. About half of consumers have errors in their credit files and 12 percent of those errors are severe enough to result in credit denial.

The first step in erasing bad credit is to order a credit report from each of the agencies, at a cost of around $15 apiece. They're free if you are unemployed, on public assistance, have been the victim of fraud or have been turned down for credit within the last 60 days based on information in your credit report. You can also see your credit report online but beware: Most of the "Check Your Credit Report Free" sites are anything but free!

Next, study the reports closely for errors. By law, items showing poor credit can stay on your report for seven years while bankruptcy filings can remain for 10 years.

Even if the items are essentially correct... so you were late in paying the bills and the company did take the card away from you, there are often bits of erroneous information: the report says an account is open when it isn't, an amount or a lender's name is wrong, the original date of delinquency is incorrect, or there are duplicate items on the report.

The next step is to send a brief letter to the credit agency. Some people who have been through this suggest using a generic reason such as "this account doesn't belong to me" (which, if the information is wrong, you can truly say). Then wait 30 days to see what happens. If the credit bureau verifies the information within 30 days, it's time to beg.

Headway can be made at the bureaus by finding sympathetic workers. Ask an official to write a letter on your behalf, then persuade the credit agency to heed the letter. If the pleading and letter writing campaigns take a while, it makes sense to start re-establishing credit.

By law, consumers can have a 100-word statement attached to their credit report explaining the circumstances surrounding a late or unpaid account.

To get new credit, apply for a department store card, which is easier to get than a MasterCard or Visa. If you get turned down, try the personal approach, going to the store's credit department and trying to persuade a manager to give you a minimum amount of credit.

If they don't agree, tell them you won't patronize their stores, which sometimes gets them to look a second time.

For major credit cards, try a debit card, or secured credit card. Financial services companies and banks will give consumers with bad credit a card if they deposit money in an account held by them. Capital One, for example, generally demands that you have a secured card account in good standing for two and a half years before it will switch you to an unsecured account.

It's also important to ask any organization to which you pay monthly bills, whether its utility companies, cable companies, mobile phones or pagers, to report your activities to a credit bureau to help prove you can pay your bills on time.