Your credit score is the key that unlocks doors to better financial opportunities. A good score can help you secure lower interest rates on loans, get approved for credit cards, and even land your dream home or job. But if your score has taken a beating or suffered a recent drop – don’t despair.
In this guide, we’ll show you key strategies on how to repair credit and get yourself back on the path to financial freedom.
Consider this your lifeline to help restore your credit score and unlock a world of new opportunities.
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What is credit repair?
Credit repair is the process of fixing poor credit reports and raising low credit scores. It involves identifying and disputing errors, paying down debts, and adopting better financial habits over time.
There are two ways you can go about credit repair. On one hand, you can work with a credit repair company. Credit repair companies typically charge a flat fee of around $400 or monthly fees ranging from $60 to $150 for services. They can take care of filing disputes and provide support to help you boost your credit score.
On the other hand, you can take matters into your own hands by working on repairing your credit score yourself. We’re going over the steps below for how to repair credit.
How to repair your credit: 9 steps
Bad credit weighing you down? Don’t let a few financial missteps hold you back any longer. We’re breaking down the steps on how to repair your credit.
1. Get your credit reports and check for errors
To start repairing your credit, obtain copies of your credit reports from the three major credit bureaus: Equifax, Experian, and TransUnion. You are entitled to one free report from each bureau every 12 months, which you can request at AnnualCreditReport.com.
Once you have your reports, carefully review them for any errors or inaccuracies. Some things to look out for include: accounts that don’t belong to you, incorrect payment statuses, or outdated information.
Regularly monitoring your credit reports helps you stay on top of your credit health. But if you’re swamped and don’t have the time to stay on top of your score, consider signing up for a credit monitoring service that alerts you to any changes or suspicious activity on your reports. This way, you can address issues promptly and protect your credit score.
2. Dispute errors and inaccuracies
Provide documentation supporting your claim, such as proof of payment or identity theft reports. The bureau must investigate your dispute within 30 days and remove any inaccurate information.
If you notice errors or inaccuracies on your credit report, you’ll want to dispute them ASAP. You can do this by reaching out to the relevant credit bureau to have your credit history cleaned up.
If you find a negative item on your credit report that’s inaccurate or outdated, send a letter to the creditor explaining the situation and ask them to remove the negative item from your report.
3. Look into credit builder loans for credit repair
A credit builder loan is another clever strategy to consider for repairing your credit score. Unlike traditional loans, the money you “borrow” is held in an account while you make monthly payments to build a positive payment history.
It’s a low-risk way to demonstrate your creditworthiness and financial responsibility. As you make on-time payments, your credit utilization improves and negative marks start to fade into the rearview mirror. Once the loan term ends, you get that money back, plus interest – making it a win-win for your credit score and your wallet.
4. Pay off any outstanding debts
Paying your bills on time is one of the most effective ways to repair your credit score. Late payments can significantly damage your credit, so make sure to prioritize timely payments for all your accounts. This goes for credit cards, loans, and utilities.
A good tip? Set up automatic payments or reminders to ensure you never miss a due date. If you struggle with remembering multiple payment dates, consider consolidating your bills or aligning their due dates to make managing your finances easier.
In case you’re facing financial difficulties and can’t make a payment on time, contact your creditor immediately. Some lenders may be willing to work with you to create a modified payment plan or temporarily defer payments, which can help prevent further damage to your credit.
5. Reduce your credit card balances
Ideally, you want to aim to keep your credit card balances below 30% of your credit limits, and ideally, even lower. High credit utilization, or the percentage of your available credit that you’re using, can negatively impact your credit score.
One strategy that helps is to create a budget to allocate more money toward paying down your credit card debt.
If you’re still struggling to make progress on your own, consider seeking help from a credit counseling agency. These organizations can work with you to create a debt management plan and negotiate with your creditors to reduce interest rates or waive certain fees, making it easier for you to pay off your balances.
Recommended: How to Pay off Credit Card Debt Fast
6. Don’t close unused credit cards
Resist the urge to close unused credit cards when working to repair your credit. While it may seem counterintuitive, keeping these accounts open can actually benefit your credit score.
Closing accounts reduces your available credit, which can increase your credit utilization ratio and negatively impact your score. Instead of closing unused cards, keep them open and use them occasionally for small purchases.
This will help you maintain a longer average credit history, which is another factor that positively influences your credit score. Just be sure to pay off any balances in full each month to avoid accruing interest or fees.
If you’re concerned about the temptation of having multiple open credit lines, consider removing the cards from your wallet and storing them in a safe place. This way, you can keep the accounts open without the risk of overspending or accumulating unnecessary debt.
Recommended: 11 Different Types of Credit Cards
7. Become an authorized user
When you become an authorized user, the account’s payment history is reported on your credit report, allowing you to benefit from their positive credit habits.
If it seems like becoming an authorized user may be a good strategy for your credit repair, consider asking a trusted family member or friend with a long history of responsible credit use. Make sure they understand that you will not be using the card and that the purpose is to help you improve your credit.
Keep in mind that as an authorized user, you are not legally responsible for the debt on the account. However, if the primary account holder fails to make payments or accumulates a high balance, it could negatively affect your credit.
8. Apply for a secured credit card
Secured cards can be a solid credit-repair hack when your score is in the gutter. By putting down a refundable deposit, you may be able to unlock a line of credit that can help rebuild your credit score from the ground up, one responsible payment at a time.
The strategy boils down to making small purchases and paying your balance in full and on time each month. This demonstrates to creditors that you can manage credit effectively, helping to improve your credit score over time.
9. Be patient and persistent
Repairing your credit takes time and dedication. You won’t see significant improvements overnight, but with consistent effort and responsible financial habits, you can gradually rebuild your credit score.
The key is to stay focused on your goal and remain persistent in your efforts to fix your credit.
As you work to repair your credit, track your progress by regularly reviewing your credit reports and scores. Celebrate the small wins along the way. Whether that’s paying off a credit card balance or disputing a negative item successfully. These milestones will keep you motivated and remind you that your hard work is paying off.
How long does it take to rebuild credit?
It can take time to rebuild and repair your credit — some negative entries on your credit report, for instance, can linger for as long as seven years. That said, there are things you can do to get the process started quickly.
Repair your credit and take advantage of your financial future
Keeping tabs on your credit can feel like navigating a minefield blindfolded at first. But once you crack the code on how that all-powerful number is calculated and master the tactics for repairing your financial reputation, you’ll stride confidently toward a future free of credit woes.
Remember to stay positive on your journey and celebrate the small wins. You got this!
FAQ
Can I repair my credit on my own without hiring professional help?
Professional help is available if you need it, but you can absolutely repair your credit yourself by taking the right actions and establishing responsible financial habits.
Will repairing my credit completely remove negative information from my credit report?
Taking steps to repair your credit can remove some information from your credit report quite quickly, but certain negative items will remain there for up to seven years (delinquencies, charge-offs, and bankruptcies). Over time, these will eventually be cleared from your report, provided you start turning things around now.
Should I close unused credit card accounts to repair my credit?
While closing your unused credit card accounts may seem like a smart move, it isn’t always. For instance, if you carry other debt, closing an account may negatively impact your credit utilization.
The length of your credit history plays a role in your credit score, so if you close an account you’ve had for years, it might actually shorten your history and count against you.
