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The average credit score in the U.S. sits at 714. Yet, this doesn’t guarantee everyone a stellar credit rating. Most creditors assess your financial trustworthiness via FICO scores, which oscillate between 850 perfection and 300.
Scores lurking below 580? They’re considered poor. Sporting a low score could block your path to various milestones, like snagging that shiny new car, leasing a swanky pad, or securing the keys to your dream abode. Not to mention, it might saddle you with steep interest rates on loans.
Boosting your credit won’t be a sprint; it’s more of a marathon. Yet, the sooner you sprint into action to elevate your score, the quicker you’ll snag those perks, including sweeter rates on mortgages or auto loans. Here’s a breakdown of eleven proactive steps to kickstart your credit score enhancement.
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How to Fix Your Credit in 11 Easy Steps
Step 1: Get Your Credit Reports
Fixing your credit often means addressing mistakes or missing details on your reports. That’s why checking your credit reports regularly is crucial—to ensure everything is spot on and there’s no sketchy stuff going on.
Here’s how to snag a free credit report
First off, grab a credit report to pinpoint what needs tweaking. The law mandates that each of the three major credit bureaus dish out one free credit report annually upon your request. If you play your cards right and spread these out, you can snag a free report every four months.
Thanks to the COVID-19 upheaval, you can currently fetch free credit reports weekly until December 2023.
Wanna request yours? Hit up the Annual Credit Report Request Service online, ring them at 1-877-322-8228, or send a letter to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
Peeking at your report, you’ll spot your credit history laid out, this includes credit cards, loans, accounts that got bumped to collection agencies, and any legal dramas like foreclosures or bankruptcies.
Given you land three free reports a year, it’s a long shot you’ll need more. But hey, if you do, you can always buy extra copies straight from the credit bureaus.
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Step 2: Check Your Credit Reports for Errors
Every time you crack open one of your credit reports, it’s key to scour it for errors. According to a 2021 Consumer Reports study, over a third of folks spotted at least one error on their reports. Often, these blunders are no small thing they can seriously cramp your style when trying to snag credit on decent terms or even get credit at all.
Taking charge of your credit is a solid move for boosting your score, but if you’re aiming to really scrub bad credit clean, you’ve got to drill down to the root issues.
When combing through your credit report, keep your eyes peeled for:
- Wonky personal info like typos or old addresses
- Accounts that aren’t yours
- Missing accounts that should be on the list
- Skewed public records (think incorrect bankruptcies, foreclosures)
- Account status errors (like open accounts marked as closed)
- Accounts marked as “closed by grantor” (the lender shut it down, not you)
- Repeated accounts
- Mishandling of your data
- Wrongly reported late payments or other negative marks
- Sketchy activities hinting at fraud
- Bungled credit inquiries
Any of these slip-ups could torpedo your credit and your shot at a loan. Did you find a goof? Check the other two reports from the big credit bureaus to see if the mess has spread.
Challenging these errors can seriously polish your credit score, often quicker than you’d think. By actively managing your credit and cleaning up report errors, you’ll likely see better outcomes than waiting for your credit to fix itself.
Pro tip: Dive into your credit report at least twice a year to catch any new errors. Spotting and disputing errors can significantly uplift your credit, boosting your chances of getting a thumbs-up from lenders.
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Step 3: Dispute Credit Report Errors
Even a single inaccuracy like a supposedly late payment that was actually timely can knock down your credit score. Errors in personal info think misreported names or addresses—won’t ding your score directly, but it’s still wise to get those straightened out. If something fishy pops up on your credit report, remember you’ve got the right to challenge it with the relevant credit bureau.
Here’s how you can raise a dispute with Experian, though TransUnion and Equifax each have their own set of steps:
- Online: Quick and direct, just hop onto Experian’s website.
- By mail: Sometimes old school is the way to go. Send your dispute the traditional way.
- By phone: Give them a ring and hash it out live.
Once you’ve filed your dispute, Experian will reach out to the entity that dropped the disputed info into your report. If the info’s off, it’ll be corrected. Can’t be verified? Expect it to be deleted or updated. Taking these steps can help ensure your credit report is as clean and accurate as possible, reflecting your true creditworthiness.
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Step 4: Bring Past-Due Accounts Current
Tackling errors on your credit report is crucial, but it’s equally important to address overdue balances on your accounts. Remember, a payment is flagged as late by credit bureaus when it’s 30 days past due. However, once you cross that 30-day mark, creditors and lenders can report you, which might affect your credit score and creditworthiness for up to seven years. The longer the delay, the more your credit suffers.
Missed the Window to Prevent a Late Payment?
If it’s too late to stop a late payment from hitting your report, you still have options to remove negative items once they’re reported.
When Do Collection Agencies Step In?
A past-due balance that’s over 30 days old might get your account handed over to a collection department or agency. They then take on the task of retrieving the owed funds. This kind of collection action can drastically drop your credit score. If there’s a mistake with the collection entry on your report, you can file a dispute, much like correcting other errors.
What Exactly is a Charge-off?
If your payments lag 180 days behind, your account gets “charged off.” This means you can’t just continue making minimum payments, the creditor writes off the debt as a loss. Moreover, you might see late fees piling up each month if you delay further. This severely hurts your creditworthiness, potentially leading to higher interest rates. Sometimes, the creditor might even pass the account to a collection agency. If paying the full amount is tough, discussing payment options with your lender is crucial. This derogatory mark generally sticks on your report for seven years.
What’s a Pay-for-Delete?
A pay-for-delete agreement involves a deal between you and a collection agency. They remove the collection account from your report if you settle the debt fully or agree to a reduced payment. Crafting a pay-for-delete letter to your creditor could persuade them to erase the charge-off from your report in return for settling the past-due balance. This can be a strategic move to cleanse your credit history and enhance your financial standing.
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Step 5: Set Up Autopay
Payment history is a major player in your FICO® Score, making up 35% of it. Once you’ve got your accounts up to date, maintaining them is crucial. Setting up autopay is a smart move. You can usually arrange this directly with your lender or service provider or through the bank account from which you pay bills.
Automating the minimum payment on your credit cards and other accounts helps dodge late payments. However, for optimal financial health, aim to clear the full balance each month. Always double-check that your account has enough funds to handle all your autopay commitments, which will help you steer clear of overdrafts or insufficient funds issues.
Step 6: Maintain a Low Credit Utilization Rate
Your credit utilization rate or ratio plays a key role in determining your credit score, influencing up to 30% of it. Essentially, this ratio measures the amount of revolving credit you’re using compared to your total credit limits. The golden rule here: the lower, the better.
To figure out your utilization rate, simply divide your total credit card balances by your total credit limits. Do this calculation for each card you own as well as for the combined total of all your cards. If you find your overall utilization rate or that of any individual account, is 30% or higher, it’s wise to start paying down those balances. This can quickly lift your credit scores. For the most significant boost, aim to get your credit utilization rate below 10%.
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Step 7: Pay Off Debt
When tackling multiple balances, you have a couple of strategies to consider.
One method is to clear the account with the highest interest rate first. For example, if you have a credit card charging 14.5% APR, you might choose to pay this off before a card with a 7% APR.
Alternatively, you might opt to settle the account with the smallest balance first. This can stop further interest from accumulating. For example, paying off a $400 balance on a new credit card could be more beneficial than allowing interest to continue building on it. Clearing a balance in full also means one less account to manage and worry about. Remember, you should still keep up with at least the minimum payments on your other accounts.
Step 8: Avoid Applying for New Credit
Whenever you apply for new credit, the lender will review your credit report through what’s known as a hard inquiry. This can temporarily drop your credit score by a few points. If you’re considering new credit like a debt consolidation loan make sure to apply only for loans you’re likely to qualify for.
A tool like Experian CreditMatch™ can be quite helpful here. It aligns you with loans that match your credit score, making it easier to pinpoint the ones you have the best shot at getting approved for.
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Step 9: Improve Credit History by Leaving Old Accounts Open
Keep in mind the duration of your credit history plays a significant role. Generally, older accounts with a solid payment track record are more beneficial for your credit score. This is something to consider when deciding which accounts to keep open and which ones to close.
Your overall credit age is determined by the average length of time all your accounts have been open. A longer credit history is better for your credit score.
Pro tip: If you have an old credit card you don’t use much, think twice before closing it. Keeping older accounts open can demonstrate a long-standing, healthy relationship with creditors, enhancing your creditworthiness.
Step 10: Apply for a Secured Credit Card
A secured credit card operates similarly to a traditional credit card but with a crucial distinction: it requires a security deposit. When you open the account, you make a refundable deposit (sometimes just a few hundred dollars), which usually sets your credit limit. If you fail to pay your bill, the issuer can use this deposit to cover the payment.
This deposit reduces the risk for the credit card company, making it easier to obtain a secured card even if your credit isn’t great. It’s wise to use the card for modest purchases to keep well below your credit limit. By consistently paying off the balance on time and in full each month, you can effectively boost your credit score.
Step 11: Get a Credit-Builder Loan
Credit-builder loans are specifically designed to help enhance your credit score. Unlike typical loans, these usually involve smaller sums, often $1,000 or less, with repayment periods ranging from six to 24 months. The borrowed money is held in a savings account or certificate of deposit during the loan period, and you make fixed monthly payments towards the loan.
As you repay the principal plus interest on a credit-builder loan, your payment history gets reported to the three major consumer credit bureaus. Making these payments on time can show your financial reliability and potentially boost your credit score. Once the loan is fully repaid, the money in the account is yours to keep.
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How to fix your credit – Buyer’s Guide
What Is Credit Repair?
Credit repair encompasses several strategies we’ve discussed like reviewing your credit reports, spotting errors, and contesting inaccuracies with credit bureaus or your creditors.
The process of filing and tracking disputes can be demanding and often requires patience. Because of this, some individuals seeking to mend their credit choose to employ a credit repair company to handle these tasks, alleviating the burden of managing it themselves.
Can I Pay Someone to Fix My Credit?
Facing tough situations is often more manageable with some help. Hiring a credit repair company can provide support in disputing negative items on your credit report and tackling other credit-related issues.
However, it’s important to remember that credit repair companies can’t magically fix your credit overnight or guarantee that accurately reported items will be removed. We’ve compiled a list of trustworthy credit repair companies for you to consider.
CreditRepair.com has been operational for a decade and has facilitated the removal of 8.2 million discrepancies since its inception. The company focuses on challenging inaccuracies in customers’ credit reports with each credit bureau, requesting creditors to verify any negative items they’ve reported, and monitoring customers’ credit to aid them in achieving their financial goals.
Customers have the option to choose from three distinct packages, along with a free consultation to help identify the package that best suits their needs. Pricing starts at $69.95 and climbs to $119.95, with a startup fee that matches the monthly fee for each package.
A standout feature of CreditRepair.com’s offerings is that all packages include credit monitoring, a benefit not always available with other credit repair services.
Lexington Law has been a prominent player in the credit repair industry for over 15 years, earning a reputation as one of the most trusted names in the business. The company was established with a mission to “revolutionize the credit repair industry by providing ethical and effective credit repair to consumers in need.”
It offers clients three different service packages, each designed to provide a roadmap for building credit and achieving financial goals.
Lexington Law’s approach encompasses four main areas: credit report analysis, credit disputing, dispute escalation, and credit score analysis and monitoring, aiming to comprehensively support customers in enhancing their credit profiles.
Customers benefit from no setup fees at Lexington Law, with packages starting at $95.95. The company also recognizes the service of veterans and active military personnel by offering them a 50% discount on the first-work price.
Additionally, Lexington Law provides a family or household discount, giving a one-time 50% discount to a customer’s spouse when both sign up for the service together.
Credit Saint has built a robust reputation over its 17 years in the credit repair industry. The company provides a free consultation for new customers, which is a great starting point for anyone looking to understand their credit issues better.
If a customer decides to proceed with a package, Credit Saint takes over communication with the credit bureaus to address discrepancies and negative items on their credit reports.
Customers have the choice of three different packages, catering to various needs and budgets. Prices start at $79.99 per month, with a minimum setup fee of $99. This setup offers a structured approach to tackling credit problems, with Credit Saint handling much of the heavy lifting.
The Credit People sets itself apart from some competitors by offering quick action and clear timelines for seeing results. They start working on your credit issues almost immediately after you sign up, and the company notes that some customers may see improvements within just 60 days.
Additionally, they provide your credit scores and reports right at the beginning of your engagement with them. This initial overview gives you a clear understanding of your starting credit situation, which can be incredibly helpful for tracking your progress over time.
Sky Blue has been a stalwart in the credit repair industry since 1989, boasting over 30 years of experience. Their process aligns with standard practices in the industry. Once you fill out the sign-up form, Sky Blue begins by reviewing your credit report to pinpoint disputable items. At this initial stage, they also offer tailored advice to help you start rebuilding your credit.
Following the review, Sky Blue will challenge incorrect entries directly with the three credit bureaus. Should the bureaus initially deny these disputes, Sky Blue doesn’t back down; instead, they persist by sending repeat dispute letters. This proactive approach enhances your chances of improving your credit score.
How to Fix Your Credit – Frequently Asked Questions
The Bottom Line
Rebuilding your credit is a process that requires patience, but with persistence, you’ll begin to see positive changes. To monitor your progress and maintain momentum toward improving your credit score, consider signing up for free credit monitoring.
This service provides real-time alerts for changes in your credit utilization or when new activities are recorded on your credit report. Keeping a vigilant watch on your credit can help you avoid slipping back into detrimental spending habits that could negate all your efforts.
