Lenders have been on a spring-cleaning blitz, attempting to clean up their own acts and show how upstanding they can be. (Especially now that the entire world is watching -- and partially funding -- their every move).

Part of the industry's Extreme Credit Practices Makeover includes cancelling lines of credit that haven't been used in a while, lowering credit limits, raising interest rates, and even offering to pay customers to voluntarily close accounts on their own.

A lot of upstanding, creditworthy customers have been caught in the cancellation crosshairs, just because of where they live or shop. Back in January, The New York Times' Ron Lieber reported that American Express (NYSE:AXP) had begun reducing lines of credit or cancelling cards based on customers' proximity to troubled real estate markets; the industries in which they work; and even where they chose to buy milk, paper towels, and light bulbs. 

Rumors spread quickly, speculating that AmEx was blacklisting discount retailers such as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), and that the best way to avoid the wrath of Big Brother was to pay with cash when making purchases at such establishments. (American Express denied that allegation, telling the Times that "spending habits" are no longer part of their creditworthiness equation.)

Still, even if you're not being judged by the mortgage you keep, the places you shop, and your ability to accessorize (hey, I think it says a lot about someone!), you still should be on your best behavior at all times. Because they are watching you. And they aren't going to stop.

Snoop on the snoopers
You should check your record with all three bureaus at least once a year-- and most definitely before undertaking any major financial move. For added incentive, consider this: One interesting tidbit in your credit report is that everyone who has pulled your report to take a peek is listed out for you to see. In other words, you get a chance to spy on the spies.

First, a quick how-to: Go to annualcreditreport.com to get your free reports. And, no, you don't have to sign up for any other services to qualify for your freebie. Annualcreditreport.com is the official site built to comply with the Fair and Accurate Credit Transactions Act (FACT Act), and it's the only service authorized by all three major credit bureaus to deliver this service.

Once you've got your report, make sure to review it for actual errors. According to statistics, anywhere from 30% to 70% of credit reports contain blunders -- everything from errors of omission (not reporting a current line of credit) to out-of-date information (saying you still live at an old address) to outright inaccuracies (claiming you have a loan for which you never applied). Sometimes there are even errors that work in your favor. (But don't hold your breath.)

Six steps to disputing credit report errors
The laws in credit la-la land are different than those here on earth: You're guilty until proven innocent. So it's up to you to launch your own defense and get the mistakes removed from your file.

In a nutshell, here are the six steps to disputing an error. For the detailed version, see "How to Fix Credit Boo-Boos."

  1. Start a record of all communications regarding the error. Include dates and copies of any documentation (e.g., past statements, canceled checks) used in your dispute.
  2. Tell the credit reporting agency what information you believe is inaccurate. The agency will start an investigation within 30 days.
  3. Inform the business that made the error that you have opened a dispute. Send them a letter explaining exactly what you want them to do (e.g., stop reporting the erroneous information).
  4. Get the good stuff put in your file. If you were denied credit because of an "insufficient credit file," that may mean that some of your lenders are simply not reporting that you're a customer in good standing -- or at all. Contact them and ask nicely if they'll brag on your behalf.
  5. Recheck your credit report. Make sure that the disputed item doesn't start appearing again.
  6. If you are unsuccessful in removing information from your credit file, you have the option of taking legal action. (Your state's attorney general's office can help you locate a lawyer who will advise you on taking a creditor to court.) If you don't want to go that far, your next option is to attach a letter of explanation to your credit file.

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Dayana Yochim spitshines her credit whenever she gets the chance. She doesn't own shares of the companies mentioned in this article. American Express and Wal-Mart Stores are Motley Fool Inside Value picks. The Fool has a disclosure policy.