How to repair your credit in 5 steps

A good credit score plays an important role in your financial well-being. If you’ve experienced some financial challenges in the past, or your score is just lower than you’d like, getting your credit score back on track may be one of your top priorities.

Repairing your credit can seem like a complicated process. Here is a step-by-step guide to help you understand and improve your credit score.

1. Check your credit score and credit reports

A successful credit repair journey begins with understanding your starting point. Checking your credit report and credit score helps you know where you stand so you can set realistic goals and track your progress.

Many online platforms and financial institutions offer free credit report and score services. Get your credit information from reputable sources to ensure accuracy and protect yourself from identity theft. Some of the available options include:

• AnnualCreditReport.com. Through this website authorized by the federal government, you can request free weekly credit reports from Equifax, Experian and TransUnion.
• Credit bureaus. The major credit bureaus offer free and paid-for credit scores. Read the fine print to make sure you aren’t accidentally signing up for a subscription service you don’t need.
• Nonprofit credit counselors. They may be able to provide you with a free credit report and credit score and help you understand the finer details of your reports.
• Your bank or credit card provider. Many lenders and credit card issuers provide free credit score tracking. It could be as simple as checking your monthly statement or logging into your account online.

2. Review your reports and dispute any errors

Once you have a copy of your credit reports, check them carefully for errors. Mistakes on credit reports are more common than you might think. Fourty-four percent of consumers have at least one error on their credit reports. Some of these errors can be harmless, like incorrect middle initials, but some can decrease your credit score.

Some common credit report errors to watch out for include:

• Accounts that don’t belong to you
• Closed accounts reported as open, or open accounts reported as closed
• Incorrect credit limits or account balances
• Information from someone else’s credit report
• Payments wrongly reported as late or missed

It’s a good idea to check your credit report for errors at least once a year, although you may want to do it more often if you plan to apply for a loan for a major purchase. If you find an error, file a dispute with the reporting bureau immediately. If the error appears on all three credit reports, you’ll need to contact each bureau individually.

What happens after a dispute?

When you file a dispute, the credit bureau has 30 days to investigate your claim. It will contact the company responsible for the alleged error, and the company will investigate your claim. When the investigation is complete, the bureau must notify you of the results within five business days.

The change may take a few days to appear on your credit report. Double-check your report to ensure all changes have been made, and follow up with the bureaus if there are still errors or they reappear.

3. Establish positive financial habits to build good credit

Building good financial habits will be the most effective step for rebuilding your credit in the long run. To do that, you need to know where to focus your efforts.

Your FICO score, which is the credit scoring model lenders use most often, is based on the following factors:

• 35%: Payment history
• 30%: Amounts owed
• 15%: Length of credit history
• 10%: New credit
• 10%: Credit mix

With those categories in mind, a few healthy financial habits will go a long way.

Pay accounts on time

Making payments on time, every time, is one of the most effective habits for reaching an excellent credit score.

Even a single missed payment can stay on your report for up to seven years. Consider setting up automatic payments for all your accounts to make sure you consistently meet payment deadlines.

Keep your credit utilization rate low

Your credit utilization is the portion of your total available credit card limits you use. A general guideline is to reduce revolving debt and aim for a credit utilization below 30 percent. This shows potential lenders that you can manage debt responsibly.

For example, if you have credit limits totaling $10,000, aim to keep your total monthly statements under $3,000. The lower you keep your credit use, the better it will reflect on your credit score. You can use a credit utilization calculator to see if you’re on track.

Consider keeping paid-off accounts open

You may want to avoid closing any credit accounts you pay off.

Closing an account lowers your available credit, which could raise your credit utilization ratio if you have outstanding balances on other accounts. Also, an account closure could reduce the average age of your credit history. Generally, the older your average credit age, the better you look to lenders.

Sometimes, it makes sense to close an account. You may want to close an account if it has an annual fee and you no longer use it. Another good reason to close an account is if leaving the account open tempts you to spend more than you can afford.

Don’t take out credit you don’t need

Each credit application triggers a hard credit check, potentially lowering your score by up to five points and reducing your average account age. Opening a lot of new accounts can be a red flag to lenders that you’re desperate to borrow money. To build credit, only apply for credit when truly necessary.

4. Take strategic steps to establish new credit

Building credit can feel daunting, especially if you start with a poor credit score or have no credit history. While you don’t have as many options as a person with good credit, you can still work on improving your score.

Open a new secured credit card

Secured credit cards are designed for people with no credit history or bad credit. These cards are backed by a cash deposit. You’ll pay the deposit upfront, and the amount you pay usually becomes your credit limit.

You can use your secured card just like any other credit card. You build your credit by consistently making on-time payments.

Become an authorized user on someone else’s credit card

An authorized user has been added to another person’s credit card account. The authorized user can make purchases with the card but isn’t legally responsible for paying the bill. The card owner’s positive credit history and responsible credit usage could raise the authorized user’s credit score.

At the same time, any negative activity on your part could damage the other person’s credit, so discuss how you’ll establish good habits or set spending limits.

Open an account with a cosigner

A cosigner is a person with good credit who agrees to be legally responsible for a loan if the primary borrower doesn’t make payments as agreed. Their good credit may make it easier for you to qualify for a loan since the lender knows it has a backup source of repayment.

A cosigner is just as responsible for the loan as you are, which could affect their ability to qualify for other loans. Make sure you can pay off any loans you borrow.

Apply for a credit-builder loan

If you have no credit history or a low credit score, a credit-builder loan can help you build a track record of responsible financial behavior without relying on a credit card. The money isn’t available until you’ve made all the loan payments, so these aren’t a great option if you need cash quickly.

5. Seek out credit counseling to discuss your options

If improving your credit score feels daunting, consider working with a reputable credit counseling agency. They offer various services to help consumers take control of their finances, from help checking your credit score to advice about making a budget.

Credit counselors may recommend a debt management plan (DMP). Under a DMP, you make regular payments to a credit counseling agency, which pays your creditors on your behalf. The agency may negotiate with creditors to secure lower interest rates, waive fees or extend repayment terms, making it easier for you to meet your financial obligations.

To find a reputable credit counseling agency, you can visit the National Foundation for Credit Counseling (NFCC), a nonprofit network of financial counselors. You can also refer to the Department of Justice to find approved credit counseling agencies near you.

The bottom line

If your credit score is lower than you’d like, you can take steps to repair your credit. Start by getting a copy of your credit reports and disputing any errors you find. Then, focus on building good financial habits and look for opportunities to establish new credit. Consider working with a credit counselor if you need some help along the way.

With effort and patience, your credit will likely improve over time.

Frequently asked questions

• What is the fastest way to fix your credit record?

  Unfortunately, there’s no quick-fix way to repair your credit. Building good credit is a process that takes time. Focus on good financial habits, such as paying your bills on time, paying down outstanding balances and only applying for new credit when needed.

• Is a credit repair company the answer to fix credit?

  Legitimate credit repair companies can help you fix credit errors dragging down your score. While they don’t offer anything you’re not allowed to do yourself, hiring one might be a good option if you’re feeling overwhelmed or short on time
  
  
  These companies can not remove accurate negative information from your report, only mistakes. Be wary of warning signs of a scam credit repair offer, such as demanding upfront payment or promises that sound too good to be true.

• How long will it take to fix my credit?

  The time it takes to improve your credit rating depends on the information on your credit history. If you have only made a few small credit mistakes, you might be able to repair your credit within a few months.
  
  
  However, if you’ve consistently missed payments or maxed out cards for an extended period, significant improvements may take years.

• What’s considered a bad credit score?

  FICO, the most commonly used credit scoring model, ranges from 300 to 850. A score between 300 and 579 is considered poor credit, while a score between 580 and 669 is considered fair.
  
  
  No matter how low your score is now, you can improve it over time.