1. Financial Learning Center
  2. Credit
  3. How To Fix Your Credit
Young woman reading her credit report.

How To Fix Your Credit

10-minute read

Building and maintaining a good credit score over the course of your adult life can be easier said than done. Everyone faces challenges at some point in their financial lives that causes their credit scores to fluctuate from time to time. Some may have faced serious financial hurdles that caused major damage, and it’s important to focus on repairing your credit as soon as possible. There’s no need to be anxious about it, and even though it may seem scary, there are several steps you can take to get on the right track.

Why Does Your Credit Need Repairing?

There are three main credit bureaus – ExperianTM, TransUnion® and Equifax® – and they’re similar in how they rank credit scores: 

  • Great: 800-850
  • Very Good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Bad: 300-579

If your score goes below 670, you want to work aggressively to improve it. Remember that the lower your score, the higher the interest rate you pay when borrowing. So, it’s important to keep your score as high as you can.

While there can be some irresponsible use of credit such as late payments due to unorganized finances, frivolous spending or poor financial management, it’s important to understand that life happens to all of us. Your score could drop for reasons out of your control like bankruptcy, job loss or medical bills.

Whatever the cause, it’s important to get on track and begin your journey to credit repair. Your credit score impacts several areas of your life, not only when you want to borrow for major purchases like homes and cars, but utility and cell phone companies check your credit to determine if you’re a risk as well. There are even some employers that require credit checks. You want to show that you’re in good standing or can at least explain what they find and assure them that you’re on a path to restoration. 

Where To Look For Damage

Incorrect information on your credit report can hurt you as well. You want to make sure everything listed is true. There have been times when a family member may have been listed as a spouse or another relative’s address was listed incorrectly on someone’s report.

Make sure your report correctly lists all the places you’ve lived and your current residence.

Next, look at your debts and check for a few things:

  1. Is this your debt or is it something you know is incorrect?
  2. Is the amount of debt outstanding correct? There may be a gap in a recent payment being posted, but there should not be a large discrepancy.
  3. Is the status of your debt correct? Is it listed as past due, current, in collections, etc.? If the status is wrong, that’s a red flag and you want to call your creditor.

Here’s another tip – don’t fix every error at the same time as it raises suspicion of fraud from the credit bureaus. The best option is to work on one or two at a time.

What Hurts Your Credit Score?

There are several things that can hurt your credit score and multiple things at once can cause a snowball effect. Here are some of the most common things that you’ll want to avoid.

Inconsistent Payment History

One of the biggest contributors to credit damage is inconsistent payment history. Missing a single payment on a credit card or loan won’t make or break you but falling behind and making multiple late payments can have a serious impact on your score.A poor payment history is extremely detrimental to your credit score; it’s the most common cause of decrease. Lenders want to know that you’re a good credit risk – that is, if they loan you money, you’ll pay it back. If you have no pay or slow pay history on your credit report, they believe they’ll lose money if they loan to you. The length of your credit history also has a major impact. The longer you can show that you’ve been a responsible borrower, the better.

Improper Credit Utilization

Most experts suggest keeping your credit utilization ratio below 30%, so exceeding that level of use can cause some damage to your score. Credit utilization simply means how much of your available credit you’ve borrowed. If you have a $500 limit and you’ve borrowed $300, this is a 60% utilization, well over the 30% guide. This is compounded if you also have inconsistent payment history.   

Applying For Or Closing Credit Accounts

Misunderstanding or misusing credit cards in general can hurt your credit score. Aside from overutilizing or maxing out credit cards, applying for and opening too many new credit accounts in a short period of time can be harmful to your credit. Closing credit accounts can also cause harm to your score. You want to be very strategic about how you open and close accounts.

Errors In Your Credit Report

As previously discussed in the “where to look for damage” section, yourcredit reports can sometimes contain mistakes that negatively impact your credit score. If those errors go undisputed or uncorrected, your credit could end up looking worse for far longer than necessary. Remember to dispute over time versus all at once but do take the time to make sure your report is updated with all the right information.

Hard Inquiries

A hard inquiry is a request for your full credit history and score when you apply for a loan or financing. It’s important to make sure you’re not allowing a lot of hard inquiries at the same time because they do make your credit score dip some. For instance, if you apply for two different credit cards in the same week, both will cause a slight score decrease.

If you have an excellent score and long history of payment consistency, hard inquiries won’t affect you as much. Those who have fragile credit will be affected the most and should limit the number of credit cards or other financing they apply for. 

Current Debts

How diligent are you at paying your current bills? Is your student loan in deferment? Maybe you missed a couple of credit card payments? If you’re not on top of your payments, your credit will reflect those missteps. No need to get down on yourself for past mistakes, but you want to course correct them as soon as you can.

Bankruptcy

As you can imagine, bankruptcy causes the most severe and long-lasting damage to your credit score. It’s not a decision to be taken lightly and should certainly be a last resort. It’s said your score can drop as many as 200 points, but it depends on where it was initially.

According to MyFico.com, “someone that had spotless credit and a very high FICO® Score could expect a huge drop in their score. On the other hand, someone with many negative items already listed on their credit report might only see a modest drop in their score. Another thing to note is that the more accounts included in the bankruptcy filing, the more of an impact on your score.”

10 Ways To Repair Credit

Now that we’ve covered how your credit can be damaged, let’s talk about how to repair it and get back on track to building a good credit score and maintaining it! The following is a list of some steps you can take to get back in good standing.

10 Ways to Repair Your Credit

  1. Pay off past-due account balances.
  2. Develop a steady schedule for future payments.
  3. Be cautious with closing old accounts.
  4. Be cautious with opening new accounts.
  5. Become an authorized user.
  6. Assess your credit utilization.
  7. Carefully check your credit reports.
  8. Avoid added hard inquiries.
  9. Pursue consumer credit counseling.
  10. Seek help from a credit repair agency.

1. Pay Off Past-Due Account Balances

The first step to repairing your credit is to make a list of all your outstanding balances and begin to pay them down one by one. Don’t try to pay them all at once, but create a plan based on your budget until each one is paid off.

2. Develop A Steady Schedule For Future Payments

Next, make sure you pay on time going forward. We all get busy, so set alarms on your phone or calendar reminders so you don’t miss the due date. Keep a monthly written budget with your budget in one column and what you actually spend in another column. This will help you see when you’re spending too much and cutting into your bill payments.

3. Be Cautious With Closing Old Accounts

Yes, when you close or cancel credit accounts it will hurt your credit score – this is a question we get all the time. If you have time before you’re looking to borrow, you’ll be OK. If you’re looking to make a purchase soon, you’ll want to keep your credit cards open even after the balance is paid off. Leaving them open helps build your credit history and may increase your chances of being approved for future credit since they represent a solid payment history.

4. Be Cautious With Opening New Accounts

While opening new accounts can sometimes be beneficial when trying to reestablish your credit, you should only do this when it’s necessary. We all get the offers in the mail for every card imaginable, but you don’t want to open too many new cards and you certainly don’t want several retailer cards just for the discounts or points. New accounts have no credit history so they don’t help build your credit or increase your score. Best to stick to the accounts you currently have and make your payments on time, pay them off each month, etc. This keeps you from falling into the slippery slope of spending more than you can afford to pay back.

5. Become An Authorized User

Another popular strategy is to become an authorized user on someone’s credit card account who has good credit. This requires a lot of trust from both parties. If the owner of the card does not pay the bill, the lender will come to you for payment. If you charge on the card and don’t pay it back, this could ruin your relationship. The idea is to get on the account, not charge anything and benefit from the owner’s good credit.

6. Assess Your Credit Utilization

Look at how much of the debt you’re using; your credit utilization. If you find that you’re over the 30%, take the steps to scale down. Think about what steps you can take to stop using the card and pay it off.

7. Carefully Check Your Credit Reports

You’re allowed one free copy of your credit report from each of the credit bureaus. You can get free copies of your reports from the three main credit bureaus once a year. One strategy is to choose one bureau to request from 3 times per year. That way you don’t just get one consolidated report, but three to compare and monitor your progress. You can potentially raise your score by thoroughly examining those reports for errors or unfamiliar credit activity and disputing the mistakes you find.

8. Avoid Added Hard Inquiries

Of course, there will be a hard inquiry when you’re applying for a loan. That said, you want to be intentional and avoid applying for credit cards for freebies or discounts off store purchases. It sounds good to save money at the time, but it hurts your score in the long run with unnecessary hard inquiries.

9. Pursue Consumer Credit Counseling

Credit counseling organizations are generally nonprofits whose mission is to help people manage their money and get out of debt. They’re great at helping you develop a strategy to improve your credit and are often low cost.

10. Seek Help From A Credit Repair Agency

Working with a credit repair agency can also be helpful. They’ll review your credit report and dispute incorrect information. Make sure to thoroughly research the company as you do have to be careful of scams. If the service costs hundreds of dollars or if you’re told your poor credit can be wiped clean, run in the other direction. If the offer sounds too good to be true, it usually is.

How Long Does It Take To Repair Credit?

Depending on the damage in need of repair, it takes an average of around 3 months to fix most mistakes within your credit history. However, it should be noted that resolving different kinds of credit issues will have different impacts on the level of improvement reflected in your score. More severe sources of damage to your credit like filing for bankruptcy will take more time and effort to bounce back from.

Maintaining Your Repaired Credit

Now that you’re on the right track in your finances and starting to repair your credit, you want to make sure your habits line up with your new path. If you’re not intentional about how you manage your money each month, you could end up with poor credit again. Here are some steps you can take to make sure you maintain the repairs you’ve made to your credit.

Stay On Top Of Payments

If you don’t want to revisit damaged credit, pay your bills on time each month. You must have a consistent and diligent routine so that it becomes second nature. Put your bills and due dates in a place you’ll see them each month or set alerts on your watch or phone. Do whatever it takes to stay on top of your payments.

Develop Other Healthy Financial Habits

In addition to building good credit behaviors, cultivating an all-around healthy financial life will only aid you in your ability to maintaining a good credit score. Number one on the list is learning how to create a budget. It doesn’t have to be difficult or fancy – whether you like apps or using a pen and paper – just get in the habit of doing it monthly. Another tip is to set a threshold for saving, paying off debt and ‘fun’ spending. This way you’ll be preparing for the future while enjoying the here and now. Just remember that once the fun money is gone not to dip into your savings, something that your budget should help with. 

Know Your Rights

Although there’s a lot of information available, many consumers are unaware of their rights as a borrower. For instance, the Credit Repair Organizations Act was passed in 1996. It states that credit repair service companies must be honest in their advertising and communications with clients. This protects you from getting scammed or paying exorbitant fees.

Credit repair can be overwhelming and seem insurmountable. It’s important to know that you can dig yourself out and it doesn’t have to be a horrible experience, just give it time. Don’t feel bad if you find yourself with poor credit either, just follow the steps shared in this article to get your score back up to a good level. With enough dedication toward gaining financial awareness and hard work toward improving your credit habits, you can dig yourself out of credit card debt with ease.

Apply For A Mortgage Online

NMLS #3030