How to Repair Your Credit in 6 Steps

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A bad credit score can be a constant source of frustration. If your score isn't where you'd like it to be, our guide on how to repair your credit can help you boost it back up.

People usually don't realize how difficult life can be with sub-optimal credit until they've been in that situation. It's much harder to get approved for credit cards or loans, and any loans you can get will have higher interest rates. You may get turned down on apartment applications or need to pay a bigger deposit, and then when you set up your utilities, that provider will likely want a deposit as well.

The good news is that you can repair your credit, and you don't have to pay money to a credit repair company to do it. It's not an overnight process, but if you commit to the steps below, you'll be on your way to excellent credit.

1. Check your credit

Before you can fix your credit, you need to know what's negatively impacting it. There are two ways to check your credit, and you should do both:

  • Use a free credit report website.
  • Request your free annual credit report from each of the three credit bureaus, which are Equifax, Experian, and TransUnion.

A free credit report website will tell you your current credit score and the factors affecting your score. If you're unfamiliar with how these scoring criteria work, now is a good time to review how your credit score is calculated.

Of the free credit report websites, I recommend either CreditWorks Basic from Experian or Credit Scorecard from Discover, because those both provide a FICO® Score, which is the most widely used type of score. Other services provide a VantageScore, which isn't used as often. Despite some similarities, FICO and VantageScore have different scoring systems.

Your credit report won't have a score on it, but it will list all the current items on your credit file. It's important to review this for accuracy, as there could be mistakes.

2. See what you can fix on your credit file

If there were any errors on your credit history, then you should file a dispute to get them removed. While consumers previously needed to mail a letter to the credit bureau to do this, all three bureaus now let you file your dispute online. Here are the dispute pages for each bureau:

Sometimes errors aren't the only things you can get removed from your credit report. Creditors may agree to remove a negative item if you settle the account with them.

For example, if you have an account that went to collections, you could negotiate a "pay for delete" with the creditor, which is when you agree to make a settlement payment and the creditor agrees to remove the item. That's one of the things credit repair companies typically do, but you can also do it on your own. With accounts you've already settled, you could write the creditor to ask for a goodwill deletion. Although this doesn't always work, it can't hurt to ask.

3. Pay your bills on time every month

Your payment history is the most important factor in your FICO® Score, so always paying your bills on time is crucial. Credit card bills are especially important, because they're reported to the credit bureaus every month. Even if money is tight, make sure you're paying at least the minimum on each of your credit cards.

Here's something a lot of people don't realize -- if you don't currently have any credit card balances, you should use a credit card at least once per month and pay it off by the due date. You need to build a positive payment history, and using a credit card can help with that.

If you don't currently have a credit card, check out credit cards for bad credit, which are ideal for repairing your credit. These are usually secured credit cards, so you must pay a security deposit when you get one. Although you may not want to pay to have a credit card, it's worth it to be able to improve your credit score, and you can eventually get that deposit back.

4. Reduce your credit utilization

Your credit utilization comes in second among factors that influence your credit score. Fortunately, only your most recently reported credit utilization matters, making this the fastest way to improve your credit score.

Let's say you have $10,000 in total available credit and $6,000 in balances. You'd be at 60% credit utilization, and that would negatively impact your credit. As you reduced your utilization, your credit would improve. If you were able to pay off a large chunk of that debt at once, you could even see your credit score jump significantly.

How to decide which debts to pay first

If you have multiple credit card balances or credit card and loan debts, it can be tricky to know where you should focus your repayment efforts.

You need to make minimum payments on all your debts to avoid missed payments and fees. If you have money leftover after making those minimum payments, it's usually best to put it towards the balance on the credit card with the highest interest rate. After you get that paid off, you can work your way down to the card with the next highest rate, and so on.

Credit cards tend to have higher interest rates than loans, but that's not the only reason to focus on paying them off first. Loans are a different type of debt than credit cards, and they have a much smaller impact on your credit utilization. Your credit utilization will benefit much more if you pay down credit card balances compared to if you pay down loan balances.

5. Monitor your progress

As you follow the steps above, your credit will begin to gradually improve. To make sure that you're heading in the right direction, keep an eye on your credit score and watch for any changes in your credit file.

You can use a free credit monitoring service to receive alerts about new entries on your credit file, such as hard inquiries or new accounts. It's good to stay up to date on what's happening with your credit, not just to monitor your progress, but also to protect yourself from identity theft and correct errors as they happen.

6. Keep your credit cards open

When your credit score has increased, you may start thinking about getting a different credit card. After all, with a good credit score, you can qualify for many of the best credit cards.

Getting a new credit card is fine, but don't close your old ones when you do. Your available credit will go down, so if you have any cards with balances left, your credit utilization will go up. And your average account history length will also go down.

If you'd like to get your deposit back on a secured credit card, try killing two birds with one stone by asking if you can upgrade that card to something better.

How long will it take?

The timeline for credit repair will depend on your financial history and what happened to your credit in the first place. While it's impossible to guarantee how fast your credit will recover because everyone's situation is different, here are some general guidelines for events that damage your credit:

  • Missed payments -- One to two years
  • Defaults -- Three to seven years
  • Bankruptcy -- Seven to 10 years

Moving forward with your credit

Repairing your credit isn't a particularly complex topic. Once you know how your credit score is calculated, it's all a matter of focusing on what you can control of those scoring criteria.

To sum it up, you'll need to:

  • See which negative marks you can eliminate from your credit report.
  • Pay your bills, especially credit card and loan bills, by the due date.
  • Get your credit utilization as low as you can and keep it that way.
  • Watch what's going on with your credit file.
  • Keep your credit cards open so you still have their credit lines and account history.

If you do that consistently, you can get a better credit score. The amount of time it takes will depend on how low your score is and what's bringing it down, but you will see steady progress along the way.

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