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Easy Steps to Repair Credit

When you have bad credit it can feel like you’re in a hole that you can’t climb out of.  But the good news is that repairing bad credit is actually easier than you think! There are several simple steps you can take to improve bad credit. It won’t happen quickly and you will need to put in concentrated effort over time. With consistent action, your score will eventually rise and you will know how to keep it up in the future.

Here are some easy steps you can take to start rebuilding your credit today.

Get Your Credit Reports and Review Them

The first step to solving any problem is getting all the information you need. In this case, that means getting your credit reports from the three major credit report companies - TransUnion, Equifax, and Experian. The Fair Credit Reporting Act allows you to access each of your credit reports for free once per year. You can contact each company individually to get your reports from them.

You can also use free or paid online credit score services to check your credit whenever. These services check your credit report on a monthly basis without doing what’s called a hard inquiry. A hard inquiry is when a company checks your credit score to determine whether or not they should extend you a line of credit. Credit score services send you your score each month so you can monitor how it’s changing. This can be a helpful motivator when you’re trying to improve your credit.

Checking for Errors

Once you have your credit reports, look them over carefully. Keep an eye out for any errors.

Many credit reports have errors significant enough to negatively impact your credit score. These errors could be accounts that aren’t yours showing on your report, incorrect late payment records, duplicate accounts, missing accounts, or accounts supposedly in collections that aren’t actually in collections.

If you find errors on your credit report, it’s important to report these errors immediately. Report the errors to each credit report company that is showing the error individually so it can be removed from each report. If you’re having trouble getting an error removed from your credit report, you may want to seek help from a credit specialist.

Pay Down Your Current Debt

Regular, on-time payments have a strong impact on your credit score, they are a very important factor in determining your score. So, one of the best ways to improve your score is to make your monthly payments on time every single month. If you have a lot of debt to pay down and barely enough money to make all your payments, the thought of catching up can be overwhelming. It helps to budget and prioritize your payments.

Budgeting and Prioritizing Payments

Say you have $200 to pay off your debt each month. Make a list of all the accounts you need to pay off each month. Then assess the status of each account. Accounts that are overdue are the highest priority. Make the largest payments on these accounts. But make sure you have enough left over to pay more than the minimum on all your other accounts.

Once you’ve paid the overdue accounts each month, pay as much as you can afford on accounts that are near their credit limit. Having more available credit in each of your accounts helps your score as well. With the remaining money you have for monthly payments, pay more than the minimum on each account, prioritizing newer accounts.

Managing Payment Dates and Amounts

Make a schedule of your payment due dates each month and put reminders in your calendar so you don’t accidentally miss the payment date. Keep track of how much you need to pay on each account each month by adding a note to the calendar reminder. This will help you stay on track with your repayment budget and your payment dates at the same time.

It will take a while for your credit to improve by making regular, on-time payments, but this is by far the best way to increase your score.

Reduce Your Debt to Credit Ratio

The amount of debt in relation to credit you have is another important factor in determining your credit score. Basically, what credit bureaus are looking to see is that you’re not using the majority of your available credit. They’re looking for a low debt to credit ratio. If most of your credit cards are near their limits, your debt to credit ratio will be high. This will negatively impact your credit score.

The good thing about this ratio is that it takes into account all the credit that you have. So, if you have one credit card with a high balance near the limit but you also have three more cards with low balances, your debt to credit ratio can still be low even though you have a card with a high balance near the limit.

Ways to Improve Your Debt to Credit Ratio

This is why it’s good to have multiple lines of credit, usually in the form of multiple credit cards. But don’t think this means that you should get a bunch of new credit cards just to improve your debt to credit ratio. Opening multiple new accounts at once negatively impacts your score.

Try getting one new credit card and paying off the balance each month to improve your debt to credit ratio. And of course, making regular monthly payments to reduce overall debt is the best way to improve your debt to credit ratio.

It’s also important for your debt to credit ratio that you keep old credit cards that you’ve paid off open. These paid off credit cards increase your total available credit, so they boost your debt to credit ratio.

Open a Different Kind of Account

There are two types of accounts that impact your credit score - installment accounts and revolving accounts. Installment accounts include things like your mortgage, your car loan, and personal loans. Revolving accounts include lines of credit, mostly your credit cards. Installment accounts represent a major purchase, and they take a long time to pay off. Revolving accounts have a set credit limit, but their utilization and payment vary each month.

Creditors want to see that you can make regular, monthly payments on both kinds of accounts. So, if you have a lot of credit cards but don’t have a mortgage, car loan, or personal loan, it may be a good idea to get an installment account. If you can get approved for one that is.

The easiest type of installment loan to get approved for is a car loan. So, if you can make your payments on time each month, getting a car loan can help improve your credit score in the long run.

Work With Creditors on Payment Plans

What happens when you really can’t pay your monthly debts? Is it possible to rebuild your credit? Fortunately, the answer is yes!

One thing that creditors don’t like to tell people is that they’re willing to work with you to come up with a payment plan. They’d much rather you pay your monthly payments, so they don’t really advertise that there’s another option.

But the bottom line is that creditors want to get paid. And if they have to work out a different payment plan with you so that they get paid, they’re willing to do that.

If you can’t make your minimum monthly payments, get in touch with the creditors directly. Be prepared to tell them how much you can pay each month and ask if they can accommodate a different payment plan. Chances are, they’ll work with you.

Rebuilding Your Credit Over Time

Raising a bad credit score doesn’t happen overnight. And it doesn’t happen without consistent effort. You need regular committed action in order to improve your score.

But, if you're willing to do that, improving your credit score isn’t as tough as you might think. Follow these simple tips and you’ll be on your way to a better score today.