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Credit Scores

How to Repair Bad Credit

“How to repair bad credit” is a question that millions of people face at some point in their life. That’s because there are a number of unanticipated events that can sink your credit score.

The most common cause is suffering an extended period of unemployment, which means an extended period with no income. A company shutting down, layoffs, severe illness – any of these events can put you in a position where you simply can’t pay your bills. Thus, your credit score suffers.

Okay, so now you’re back to work, making good money. You want to be able to qualify for the best credit cards and get good rates on loans or mortgages.  How do you go about repairing your credit?

First, don’t sink into despair, thinking that your credit is ruined forever. You can repair your damaged credit, and it’s not that difficult.

Second, in order to repair bad credit in the most efficient way (as thoroughly and as rapidly as possible), you need to develop an organized plan for improving your credit score re-establishing good credit. Once you’ve devised a plan, stick to it faithfully.

This article will tell you about all the steps that you need to take to restore your good credit. Okay, let’s fix your credit!

How to Repair Bad Credit – Step One: See What Your Credit Situation Is

You can’t start fixing the problem of poor credit without first determining exactly what your credit situation looks like and what needs to be fixed. Therefore, step one in repairing your credit is to get a copy of your credit report from all three major credit bureaus – Experian, TransUnion, and Equifax. Why all three? – Because some items may appear on one credit report that aren’t on the other reports.

The first thing you want to examine your credit reports for is any errors – either debts that aren’t yours or that show an amount owed that’s more than you actually owe on an account. You have the legal right to file a dispute regarding any item on your credit report, either in writing or online at the appropriate credit bureau website.

Once you file a dispute, the credit bureau has to either verify the item showing on your report within 30 days, or delete it from your report.

Even if a negative item on your credit report is accurate, you might still want to file a dispute, particularly if it’s a very old debt. Why? – Because many creditors won’t bother with a verification request from a credit bureau, so you might easily get a negative item scratched off your report just by filing a dispute.

Understand that most negative items remain on your credit report for seven years.

Step Two – A Plan to Repair Damaged Credit

Step two is to look at what remains on your credit reports that needs to be fixed – late payments on bills, unpaid bills, accounts in collections, and your credit utilization rate. You want to try to address every credit problem that you can.

Next, take an honest look at your income and figure out how much money, per month, you can devote to your credit repair efforts. Then, decide how to divide that money into monthly amounts to pay to each of your creditors. There are two approaches you can take to paying down debt. One approach is to devote more money to debt accounts, such as a credit card, where you have the highest balance and are paying the highest interest rate. The other approach is to aim to pay off your smallest debts first and then work your way up to making a serious dent in larger debts.

Negotiate with Credit Card Issuers

You can often reduce your outstanding debt load substantially just by contacting your creditors. Explain what happened to make you fall behind financially and state that you are now in a position to resume paying your bills in a timely fashion. Then, ask if they’ll give you something of a break on what you owe. For example, if you’ve been charged late payment fees on a credit card, ask if they’ll remove all or at least part of the late fees, thus reducing your total balance owed.

Most credit card issuers will be willing to write off at least part of any late payment or overlimit fees that have piled up, although they may ask you to demonstrate renewed good credit habits first. So, they may offer you a deal such as if you make your next three regular payments on time, they’ll then credit your account for some late payment or overlimit fees.

Your credit card company may also be willing to temporarily lower the interest rate charged on your account. It doesn’t cost you anything to ask.

Bills Other Than Credit Card Debt

You should also try to negotiate your debt down with other bills, too, such as medical bills, utility bills, back rent owed, etc. With many such bills, you can ask if the creditor will accept a smaller amount to settle the bill than the total you owe. Very often, they will – they’d prefer to get something rather than nothing. You might easily get an outstanding debt of $300 settled for $150 or less. Of course, don’t make an offer that you can’t follow through on.

If you’re not in a position to completely pay off a reasonable portion of an outstanding debt, at least begin making small, regular payments. Again, your creditor would rather receive some payments than get nothing. So, maybe you just make $10 a month payments on that $300 outstanding debt until you’re in a position to try to negotiate a smaller payoff for the total remaining balance.

Once you’ve settled a charge-off or bill that had gone into collection, you can even ask for a “goodwill deletion” of the debt from your credit report. You may or may not get it, but, again, it doesn’t hurt to ask.

Step Three – Start Rebuilding Good Credit

Taking the steps outlined above should, at the very least, stop your credit score from sinking any lower. Next, it’s time to work on moving your score back up into good credit territory.

Understanding what impacts your credit rating

In order to work effectively to improve your credit score, you need to be aware of exactly what affects your score and how much it affects your score. The following are all the primary factors that contribute to your credit score:

  • Payment history – Your payment history is the single biggest factor that affects your credit score. It accounts for 35% of a credit score calculation. Therefore, the sooner you put missed payments or late payments way back in your rearview mirror, the sooner your credit score will start going up significantly.
  • Credit utilization rate – Your credit utilization rate, which makes up 30% of your credit score, is the percentage of all your available credit that you’re currently using. For example, if you have $5,000 in total available credit card credit, and you owe $2,500 on your cards, then your credit utilization rate is 50%. To boost your credit score, try to get your rate under 30% of your total available credit and keep it there.
  • Length of your credit history – 15% of your credit score depends on how long you’ve had any kind of credit history, and is based on the average length of all your current credit accounts. One mistake some people make when trying to repair their credit is paying off credit cards and then closing the account. That can be a bad move for two reasons: first, it reduces your average length of credit history, and second, it increases your credit utilization rate on your remaining credit accounts.
  • Credit mix – 10% of your score is dependent on having different types of credit, such as credit cards and an auto loan or mortgage loan. The more different kinds of creditors that are willing to give you credit, the better your credit score.
  • New credit account applications – Applying for new credit, which leads a creditor to make what’s known as a “hard inquiry” of your credit, has a negative effect on your credit score if you apply for several credit accounts over a short span of time. Fortunately, the impact is relatively small – 10% of your overall score.

Having a clear understanding of what contributes to your credit score will help guide you in rebuilding good credit. You’ll know that always making credit account payments on time is the most significant factor in improving your credit rating, and that you should try to keep your credit utilization rate low.

Rebuilding Good Credit – The Path Back to a High Credit Score

Okay – you’ve done what you can to pay off existing debts, negotiated getting debts reduced, and managed to get back on good terms with your credit card issuers. Now what? The three main keys to rebuilding a good credit rating are making debt payments on time every month, getting and keeping your credit utilization rate low, and establishing new spotless credit records.

Pay Bills on Time Every Month

Again, your payment history has the largest impact on your credit score. Consider setting up autopayments for credit accounts that offer them (most do). The money due will then automatically be withdrawn from whatever bank account you set up the autopay with. Just make sure that you stay aware of when autopayments will be made and are careful to have enough money in your account to cover them. Otherwise, you can create monetary problems with both your creditor and your bank. If you see that you’re not going to be able to cover a scheduled autopay, contact your creditor and make other arrangements to pay that month’s bill.

If, at some point in the future, you again experience significant financial difficulties, be proactive and contact all your creditors before you miss any payments. If you do that, they may be willing to freeze your debt at its current level, so you avoid the debt growing from interest fees, late payment fees, or overlimit fees.

Pay Down Your Total Debt Level

To address the second most important factor in your credit score – your credit utilization, pay down your outstanding debt. The easiest way to do this is to avoid using your credit cards for several months, while you’re making regular payments on them. Try to pay more than the minimum amount due whenever you can. You can make a lot of progress in just a few months that way. Believe me – I know. I was once maxed out on all my credit cards, but after just six months of making payments and not using the cards, I had my credit utilization down to less than 50%.

Extra Tip: You can avoid some interest charges if you pay your credit card bills before they’re due every month. Contact the issuer and ask them what day of the month they bill on, as that’s when new interest charges are made to your account. If you make your payment before that date, then your interest charges will be less than if you’d made your payment after that date.

Get a New Credit Card if You Can

If your credit score is still good enough to enable you to get a new credit card, then you may want to do that. If you can get a balance transfer card, it usually comes with an interest-free period of several months to a year. You can save a lot in interest charges by transferring the outstanding balances from cards you already have, especially high interest cards.

Getting a new credit card that you can start and maintain a spotless credit history with, whether it’s a balance transfer card or not, can eventually help boost your credit score (although initially it will have a slightly negative impact on the length of credit history factor in your score).

Even if your credit has been severely damaged, there are a couple of options you can pursue to start re-establishing good credit. One is to get a secured credit card. With a secured card, you deposit an amount of money with the card issuer that’s equal to the line of credit they’ll extend to you with the card. That way, the issuer isn’t risking anything, because they already have the money to pay off your card in full, even if you max it out and don’t make payments. (But don’t do that.)

Another option is to become an authorized user on someone else’s card. This is a good option if, say, you’re a student and one of your parents is willing to add you as a user on their card. You might be able to get an unsecured card if you have a parent willing to co-sign the credit card application.

Note: If you want to go the authorized user route, make sure the card issuer reports authorized user activity to the credit bureaus. Most, but not all, of them do. Generally, you can count on the following issuers to report your good credit history as an authorized user: American Express, Capital One, Discover, Wells Fargo, Bank of America, and Chase.

Boost Your Credit Score with Non-debt Items

You can get regular rent and utility payments added to your Experian credit report by signing up for Experian Boost. Experian will record up to two years’ worth of payments made to landlords, utility companies, cellphone service providers, and streaming services. That improves your credit mix and adds several credit accounts with good credit history to your report.

Why Having Good Credit is Important

Just in case you were having the thought, “Why should I bother repairing my credit?”, there are a number of key reasons why having good credit is important. While good credit can give you several financial advantages, having a poor credit score can cause you several problems:

  • Poor credit can make it very difficult to get a mortgage loan to buy a house
  • Problems with renting an apartment – Bad credit can keep you from getting into an apartment that you want, or mean having to put down a higher security deposit.
  • Good credit often means that utility companies, such as electricity, gas, and cable TV companies, won’t require a security deposit to give you service. Bad credit nearly always means that they will.
  • Problems getting cell phone service – Many cell phone companies check your credit – and may not be willing to give you a service plan if your credit score is poor.
  • Employment problems – Bad credit can keep you from getting a job. That’s especially true if the job is in any way related to the financial services industry.
  • Higher insurance rates – In some states, you may have to pay more for auto insurance if you have bad credit.
  • Qualify for the best credit cards, which include cash-back credit cards.

How to Repair Bad Credit – Summary

If you’ve had some financial problems that have negatively affected your credit score, don’t just try to ignore the problem – that won’t make it go away. Repairing bad credit isn’t that difficult. There are simple steps you can take to rebuild good credit. All you need is an organized plan of action. It may take some time – depending on how far into the red your finances have gone – but you can definitely boost your credit score back to a good-to-excellent rating.

If you’re having some problems with repairing your credit, there’s professional help available. The U.S. Department of Justice maintains a list of credit counseling agencies available in each state.


How can I raise my credit score?

Making credit payments on time and keeping the amount of credit you use at less than 30% of the total credit available to you are the two things that will do the most to raise your credit score. Those two elements make up 65% of your score, far more than any other factors.

How long does credit repair take?

Just like it took some time for your credit score to go down, it’ll take some time to get it back up. The positive effects of the actions you take in the first six months to repair your credit may not be fully reflected in your credit report for another six months or so beyond that. So, don’t be discouraged – just keep practicing positive credit habits and it will eventually pay off in an improved credit score.

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J.B. Maverick

J.B. Maverick is active investor who has written hundreds of articles on personal finance and investing for dozens of different investor information websites, such as He has also acted as an advisor and course editor for the Financial Educators Council.

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