How to Fix Your Credit
Last Updated: January 12, 2023
If you’re among the 67% of Americans who have a good-to-excellent credit score, you shouldn’t be troubled with how to fix your credit. But, in case your FICO score falls somewhere between 300–669, you must work on its improvement asap.
Credit score affects various areas of your life. It’s not only essential for getting more favorable interest rates on loans, credit cards, or insurance. If your credit is bad or you have many open credit lines on your report, you may be denied your dream home or job.
Now that you’ve realized how vital a good credit rating is, it’s time to learn how to improve your credit score. Dive in!
How To Fix Your Credit: DIY Credit Repair
If your credit score is bad, it doesn’t necessarily mean that it should stay so for good. With a bit of effort and patience, it can be successfully repaired. What’s more, you can restore it on your own. What you need to do is follow these steps.
So, how to fix bad credit on your own?
Get your free credit report
Before we get to the point of credit boost, you need to understand why your credit dropped in the first place. Expectedly, the main “culprits” are missed payments and hard inquiries due to loan or credit card applications. This is something that can’t be removed from your report. Yet, if you’ve been a victim of identity theft or have some derogatory marks that are not your fault, you have a chance to improve your credit score.
According to the Fair Credit Reporting Act (FCRA), you’re entitled to a free credit report once a year. Use this opportunity to request a copy of your file from the three credit bureaus — Experian, Equifax, and TransUnion. The easiest way to do so is via the Annual Credit Report website.
Look for inaccuracies
Once you get your copy, peruse it carefully. It may take a while, but it will certainly be worth both your time and effort. But how to know what you should look for when doing a credit repair?
In addition to the necessary personal information, your credit report contains data about your accounts, payment history, collections, and personal bankruptcy. It also holds the record of credit inquiries that lenders pulled when you applied for a loan or a credit card.
But your credit history may also be damaged by incorrect information resulting from specific unfavorable circumstances. Thus, while rebuilding credit on your own, look for the instances of the following:
- Identity errors or incorrect personal information — this may happen if your name is misspelled or if your SSN, address, or birth date are wrong.
- Incorrect accounts due to identity theft — if you’ve become a victim of identity theft, you may find accounts opened with your personal information.
- Accounts that you didn’t open — if your name is quite common, you may be unfortunate enough to see someone else’s account on your credit report.
- An authorized user appears as an account owner — instead of you, your child appears as the account owner.
- Closed accounts show as opened, or there are duplicate accounts.
- Inaccurate payment history appears (some timely payments are reported late or delinquent).
- Obsolete balance or credit limit data is included.
Start repairing your credit
In case you found some of this incorrect information (also referred to as derogatory marks) on your account, you need to ask for its removal. You can do so by sending challenge letters to credit bureaus.
Your letter should include:
- Your full name and home address
- Every derogatory item that you’ve found and the reason for its dispute
- Copies (never include originals!) of documents to support your claims
- A request for the derogatory items to be removed
It would be wise to include a copy of your credit report as well, in which you circled or highlighted the disputable mistakes. Once you’ve prepared all the necessary documents for your credit clean-up, send them to credit bureaus. To have evidence, send them by certified mail. You may have to pay for a “return receipt” service, but you’ll know for sure that the recipients got it.
Once they receive your mail, the bureaus will start investigating the derogatory marks. If they discover that the items are plausible, they will forward your credentials to the lender or credit card issuer that reported the information. As soon as they are informed about the errors, the businesses have to investigate them, review the information and get back to the bureau.
You may expect to see the first results of self-credit repair within 30 days. Keep in mind, though, that information such as late payments or hard inquiries, collections, or bankruptcies cannot be removed from your credit history.
What if there’s a mistake
In case the business does find a mistake, it needs to inform the credit agencies about it. The bureaus have to correct it, then send you the results in writing. Also, they need to provide a new copy of your updated credit report. With this, the process of your free credit repair is almost over.
Upon your request, the credit bureaus may also send notices to anyone who has got your credit report in the previous six months. Likewise, they may send a copy of your report to anyone who requested it for employment purposes in the past two years.
Hire a credit repair company
The do-it-yourself credit repair approach can be tiresome. Not only do you need to pay great attention to details, but you also need to check every single piece of information.
If this sounds too overwhelming to you, don’t worry. There is another solution that will spare both your time and nerves — credit repair companies.
Now, what on earth is that?!
A credit repair company practically does everything you would do if you were fixing your credit on your own. First, it will have a thorough look at your credit report. Next, in case it finds anything disputable, it will send challenge letters to credit bureaus. Depending on the company, you may be able to monitor the entire credit score boost process. Again, you may see the first result within 30 to 60 days after the dispute letters have been sent.
But, since people struggling with bad credit can be easy prey, you need to watch out for scams. If a company promises to remove everything from your report, advises you to lie on your application, and even requires you to pay in advance, be sure that it is fraudulent. You will only lose your money while your credit will be intact.
A legit company offering credit repair services on no account could promise to remove accurate negative items such as bad payment history or credit pulls. It could only look for inaccuracies, then challenge them. Similarly, a good company will let you know how long you should wait to see the first results of the credit repair process, as well as how much you’ll need to pay for their services. And you won’t pay in advance but on the go.
Ultimately, a legitimate business will always guarantee its services. In case it fails to fix your credit, you’ll have your money back.
How to Improve Your Credit Score: Best Way to Build Credit
Removing inaccuracies from your credit report is a handy way of boosting your FICO score. Unfortunately, it won’t do if your credit dropped because of late payments, account collections, or bankruptcies. These all have a devastating effect on your credit. Plus, they stay in your files for up to ten years.
So to increase your credit score, you may need to take other steps as well. Some of them will also help you become debt-free.
Pay off outstanding balances
One of the first and most critical steps toward credit improvement is realizing that not all balances are the same. If you’re a credit cardholder, you should make a difference between the monthly statement and the outstanding balance.
The former refers to the money you owe according to the last bill that you got. It includes all your purchases, transfers, interest, and fees accumulated during the last monthly billing cycle.
The latter (also referred to as a current balance) is the entire unpaid amount on your credit card. In a nutshell, it’s an amount that you currently owe based on your purchases, transfers, interest, and fees. As it will turn out, an outstanding balance is more significant than you might have thought when it comes to fixing credit.
Unlike a monthly statement which remains unchanged until the next billing cycle, your outstanding balance changes whenever you use your credit card. Every new purchase or transaction you make is added to your current balance.
But why is it vital for building credit? As you already know, you can pay the minimum due to avoid late payment fees. For instance, if you’ve just made a $400 purchase, this will be your current balance. But you don’t have to pay the entire amount. It would be enough to pay $150 or $200.
Yet, paying off outstanding balances in full will not only help you get rid of interest but also lower your utilization ratio. As you will see later, a low credit utilization ratio is crucial for credit score repair.
Become an authorized user to someone’s account
In addition to a credit utilization rate, your credit history length plays a significant role in calculating your overall FICO score. If you’ve never opened an account, or you did so quite recently, your credit history will be rather short. Logically, your credit score will be poor.
The fastest way to build credit is to get a credit card. But since you won’t be able to get the card with the most favorable rates due to your poor FICO score, there’s a more practical solution to this problem. Namely, you can ask your partner, friend, or relative to add you as an authorized user to their account.
If you’re not a huge fan of credit cards, or you’re afraid of overspending, worry not. You don’t even have to use the card you’re authorized to boost your credit score. What is essential, though, is that the primary cardholder uses it responsibly and makes all payments on time. Otherwise, you might destroy your FICO score even more.
Also, make sure whether the credit card issuer reports the activity of an authorized user. If they don’t, there would be no point in becoming an authorized user as you won’t be able to fix your credit this way.
In case you have no one to authorize you to use their card, you can give a tradeline service a go. The company providing such services will list you as an authorized user of someone else’s credit card. You won’t have access to their money, nor will you be able to use the card. You’ll just take advantage of their good FICO score to raise your credit score fast.
Lower your credit utilization ratio
Remember the credit utilization rate we mentioned before? Now we’ll discuss in detail how it affects your credit score and why it’s crucial to keep it as low as possible.
The credit utilization rate stands for your total balances divided by your credit limits. In other words, it indicates how much of your available credit you’re using.
For instance, you have a $5,000 limit on your credit card, but your balance is $2,500. This shows that your credit utilization is 50%. Since the optimal should not exceed 30%, such a figure implies that you may be overusing your credit card. As a consequence, your FICO score will be damaged.
To fix your credit score, you should drop your credit utilization ratio down. A lower figure shows you’re not using the total amount you have on your cards. This further gives a positive impression to credit report monitoring systems, as they see it as a sign that you don’t overspend.
But how to fix your credit by lowering your utilization rate? One possible solution is refraining from large or unnecessary purchases. Another is getting a prepaid debit card as an alternative to a credit card. Not only will such cards prevent you from maxing or overdrafting them, but they also won’t impact your credit directly.
Start paying your bills on time
Timely payments aren’t vital only to avoid being suspended from services and avoiding extra fees. Missed payments may result in debt collection or foreclosures. Ultimately, they may harm your credit as they appear as negative items in your credit history.
While utility companies won’t typically report a customer’s payment history, they do pass on delinquent accounts that have failed to make their minimum monthly payment for 30 days from the original due date. So, if you’ve tended to skip paying your bills, now it’s high time to stop doing this.
And as the question is how to repair credit, paying your bills on time could be one of the quickest ways to improve your FICO score. But how?
Most likely, you already know that loan and credit score repayment history is influential in determining your credit score. But do you know that your timely gas, electricity, water, phone, and even streaming services bill payments can aid your credit fix?
Experian, one of the three major credit bureaus, has launched Experian Boost, a service whose main purpose is to help US citizens build credit. To start using the service and get credit for timely payments, you need to link it with the bank account you use for paying bills. As soon as the process of connecting and verification is over, Experian Boost will detect your payment history.
If your previous payments were all on time, your credit might increase by 13 points. In case you missed some of them, let Experian Boost be your incentive to pay all your bills on time and thus help you rebuild your credit.
A bad FICO score is more than just three digits that prevent you from getting a credit card or a loan with the best interest rates. It can significantly affect other areas of your life, such as employment or accommodation.
Once you’ve learned how to fix your credit, you must keep working on it. Forget about previous habits that led to its destruction. Neither of the tips to repair credit will be successful if you keep making the same mistakes that resulted in the drop of your FICO score.
Bear in mind that restoring credit isn’t a quick process. It takes at least a year to reach a fair FICO score and a year and a half to attain a good credit. So be patient and persistent. Most importantly, pay everything on time and abstain from getting into debt.
Chapter 7 bankruptcy eliminates the majority of your debt and stays on your report for ten years. Chapter 13 bankruptcy allows you to pay off either all or a part of your debt over a specific period of time and remains on your credit report for seven years.
Most derogatory marks such as missed payments, collections, or foreclosure may stay on your report for seven years. Some of them may linger even up to ten years, such as personal bankruptcy.
If you think that some derogatory marks on your report are errors, you can dispute them by sending challenge letters to credit bureaus. This could be one of the handy methods to raise your credit score instantly.
No, to repair your credit, these companies can only remove negative items on your report that resulted from a mistake (misspelled name, wrong SSN, identity theft consequences, etc.). If a credit repair company offers you to have your late payments or hard pulls removed, feel free to report such a company as it’s most likely a scam.
If you’re improving poor credit, it will take about 12 months to attain a fair, and 18 months to achieve a good credit score. But if you’re building credit from scratch, it will take somewhat less — six months.
Now that you are familiar with how to fix your credit, start working on it now. The sooner you start, the less it will take you to get the first results.