It can take years to fix a bad credit score but these steps can help you fix your credit score fast
Miss a payment and now can’t get a loan because of your credit score? Are the only loans you get are on interest rates you can’t afford?
I had the same problem five years ago after destroying my credit. My credit score was so bad, I even got turned down for a job I wanted!
But I learned everything I could about how to fix a bad credit score and now I’ve got a score of nearly 800 FICO. I get any loan I want and at the lowest rates.
What does this mean for you?
It can take years to get fix a bad credit score after missing a payment but there are some steps you can take that will fix your credit score fast. Even if you don’t need a loan right now, it’s best to start increasing your credit score for when you do need the money.
I’ve updated this post with an infographic of my favorite quick fixes for a higher credit score but the full list of 21 ways to improve your credit score are still there to really take your score higher.
Why Does it Take So Long to Boost Your Credit Score?
Part of the reason it can take longer to fix your score is the fact that some of the biggest steps to fixing a bad credit score take several months to complete. Another factor is that inquiries, when you or a lender accesses information in your report, stay on your credit report for six months.
Too many inquiries will lower your credit score so it’s a good idea to give them time to drop off the report.
So even if you don’t think you need a higher credit score, check out the 21 steps to fix a bad credit score below and plan ahead. Just a 100 point difference in your FICO score can mean rates that are 21% lower on personal loans.
I’ve included a great credit score infographic here with my favorite ways to boost a bad credit score fast but be sure to scroll down for the full list of 21 ways to improve your credit and a special deal on credit monitoring to stop identity theft!
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21 Steps to Increase your Credit Score Now
1) Understand why you have a bad credit score
If you are going to fix your credit score, you need to understand what your credit score is and how it works. The credit score is a number, generally between 300 and 850 assigned by one of three agencies. That bad credit score is based on a variety of factors like your ability to pay off more debt, your credit history and other things that might help creditors make the decision whether you will pay them back.
A score below 600 will generally mean you’ll have trouble getting loans or will have to pay a higher interest rate. A score of 720 or above will generally get you better interest rates.
While the credit rating agencies don’t release the exact details of their rating systems, we do know the five basic factors and how they contribute to a bad credit score.
There are a few credit score factors that you won’t really have much control over except going forward. If you’ve had a history of paying late or defaulting on your debt, there’s nothing you can do about it now. It is going to show up in your payment history, the biggest credit score factor, but resolving to pay on-time in the future will help increase your score.
Understand that part of fixing a bad credit score is understanding why your score is so bad and living up to it.
“God grant me the serenity to accept the parts of my bad credit I cannot change, courage to not overspend on that President’s Day sale and the wisdom to fix my credit”
The length of your credit history is also something you’ve got no control over. The clock has been ticking since you opened your first accounts. Fortunately credit history length is only 15% of your credit scoring factors.
Total amount owed is how much you owe and how much it is compared to your total available credit. Even if you owe a relatively large amount, say $5k but you have another $25,000 available in new credit, then it doesn’t appear to creditors as if you’ve maxed yourself out. Max out your credit and new creditors figure you’ll have no other alternative but to default if times get tough.
New credit is a relatively small factor contributing to a bad credit score but is important because you can control this one. Calling around and inquiring or opening a lot of new credit lines will drive your credit score lower. It’s generally a good idea to give yourself about six months after inquiries and open credit accounts before you go to apply for a large credit loan.
Types of credit are important as well. Revolving credit, like credit cards where you can keep charging debt, hurts your score more than non-revolving debt like a car loan or home mortgage.
The idea here is that you have fixed payments and a payoff date on your non-revolving debt so it’s harder to get into financial trouble. Those credit card bills can really start piling up and it’s much easier to get in over your head.
2) Keep the contact information for credit score companies
Contacting the credit bureaus is going to be an important part of fixing a bad credit score so you need to have their addresses handy. If an error on your credit report is causing the bad credit score, you have to contact the companies directly.
Equifax Credit Information Services, Inc
Address: P.O. Box 740241
Atlanta, GA 30374
TransUnion LLC Consumer Disclosure Center
Address: P.O. Box 2000
Chester, PA 19022
Experian National Consumer Assistance Center
Address: 475 Anton Blvd.
Costa Mesa, CA 92626
3) Review your credit score and reports for accuracy
The first step to fixing your credit score is to check your three reports for errors. It doesn’t happen a lot but the Federal Trade Commission estimates that at least 5% of reports contain an error. Even one error could mean the difference between a great score with a low rate loan and a bad credit score with a rate in the double-digits, causing you to pay thousands in additional interest every year.
You can download your free credit report once a year from annualcreditreport.com to check the details on your debts. I usually like to check my credit report and score at least two or three times a year just to make sure I haven’t been a victim of identity theft. I use the TransUnion credit monitoring service when my annual credit report isn’t available. The report comes directly from the reporting agencies and I get my FICO score. They often have discount deals to get your report and score for a dollar so it’s a fairly good deal.
4) Remove negative comments from reports to fix a bad credit score
This is one of my favorite steps because it can really boost your bad credit score. The first step is to write a dispute letter to the credit bureau about any errors on the report. Send it certified mail and mark as “return receipt requested” for your records.
The credit bureau is required to investigate the claim and will contact the company that posted the negative account. If the credit bureau does not hear back from the company, they will remove the account from your report. The credit bureau is also required to follow up with you and tell you the result of the investigation.
While most people know about arguing errors on their report, the trick works for getting any negative comment off your account. Sears has bigger problems than verifying charge card accounts that were closed years ago. If you’re lucky, they’ll just not reply to the credit bureau’s information request and you’ll get that missed payment wiped off your record.
5) Get a secured credit card to build up your credit history
If your credit score is too low to get an unsecured card, try getting a secured credit card. It works like a debit card and is easier to get. You deposit a sum of money with the bank, and you’ll have that sum of credit limit on your secured card. Then use the card normally. Pay in full, on time, every month to avoid fees and it should help raise your credit score through payment history.
6) Stop using your credit cards as much.
If you’re maxed out on your credit, new loans are going to be hard to come by or very expensive. You need to get your credit under control and lower the amount you owe.
If you keep using credit in order to pay off debt, you’re not really making a dent in your debt; you are just shifting your debt around and contributing to your bad credit score. Remember, debt owed and available credit is a big part of your credit score.
You’ll hear this referred to as your credit utilization, the amount you owe as a percentage of total credit. If you owe $5,000 and all your credit lines together equal $10,000 then you’re at a 50% utilization rate. You should aim to keep your credit utilization rate to 30% or less.
7) Get a peer loan to pay off your credit cards
Personal Loans show up on your credit score as non-revolving lines of credit since they have a fixed payment and you cannot continuously keep charging more debt. While a high amount of any type of credit will hurt your score, non-revolving credit doesn’t hurt your score as much. Use a peer loan to pay off revolving credit like charge cards but just make sure you don’t run out charge more on your cards. Just make sure you avoid these 3 biggest risks in peer lending.
PersonalLoans is one of the largest providers of peer and personal loans though you’ll need a credit score above 580 to apply. Rates are competitive with most other loans and debt consolidation continues to be the most popular use of loans. Checking your rate will not affect your credit score and most loans are funded within a few days.
8) Add good credit accounts to fix your bad credit score
It sounds weird that you would want to open more credit accounts to fix your credit score but it does work. If you don’t have much of a payment history or many lines of credit, try opening a couple of new cards. Use them normally and pay them off each month.
This will increase your available credit, lowering your utilization ratio, and will also help improve your payment history.
Do this within reason, you don’t need more than a few credit card accounts to help build your score. Do this six months before a major loan so you won’t have a lot of inquiries or new accounts on your credit reports.
Check out this Resource List of the Best Personal Loan Sites for Special Features and Discounts
9) Become an authorized user on another credit card
If you are not able to get any credit cards of your own, you might try getting noted as an authorized user on someone else’s card. This will help build up your credit while being listed on their card. It may take some convincing, especially if you have not been financially responsible in the past.
This one is tricky because you absolutely have to hold up your end of the bargain and use the credit responsibly. Leaving your friend with the bill will not help your credit score or your friendship.
10) Decide whether to avalanche or snowball your debt
Debt owed is a big credit score factor so you need a plan on paying off credit. Avalanching your debt means paying off the highest interest rates first. It starts by listing all your debts in order of the interest rate. You continue to make minimum payments on all but pay as much extra as you can afford to the first on the list.
Once you pay the highest rate credit line off, you move on to the next on the list and pay it off.
Snowballing your debt is another strategy and involves paying off the smallest accounts first. List all your credit lines from smallest to largest amount owed. Any extra money after minimum payments goes to paying off the smallest accounts.
You may end up paying more in interest with this method, since you aren’t focusing on high-interest loans, but it feels really good to see those credit accounts drop off your list quickly and can motivate you to keep going.
11) Once you pay off your debt, make sure you get a settlement letter.
Send a copy of your letter to the credit bureaus so they can update your credit report right away. This should have an effect on your credit score and your ability to borrow money.
12) Negotiate with creditors to fix a bad credit score
Contact creditors with negative comments on your credit reports. Offer to pay off the debt or a portion of it if they will agree to contact the credit bureau and remove it from your report. Get the deal in writing and hold up your end. This can be a really effective way of getting negative accounts removed from your report and boosting your credit score.
13) Create a budget and keep it to fix your credit score
This one should probably be at the top of the list to get you started but it isn’t directly related to fixing your credit score so I put it here. If you continuously overspend and can’t stick to a budget then fixing your credit score will do little good after you destroy it again. We covered setting realistic financial goals and a budget strategy you can keep in a prior post. Check it out for some good ideas on budgeting.
14) Get current on your payments and stay current
With payment history the biggest credit score factor, you really need to get your bills current and keep it that way. Negotiate the amounts you owe or find some way to get current on your bills then keep making on-time payments.
15) Don’t close your credit accounts
Closing a lot of accounts suddenly may affect your credit score as well. It’s ok to close accounts you don’t use or to do it to keep yourself from overspending, just try to close accounts at least six months before you need to apply for any big loans.
16) Set up payment reminders on your bills
We all get busy and forget to pay our bills from time to time. Make it easy on yourself and set up email or text reminders for when you need to pay bills. You could also enroll in automatic payments, which are automatically debited from your bank account. Making your credit payments on time is one of the biggest contributing factors to your credit score.
17) Look out for identity theft
Even as the victim, identity theft can ruin your credit and haunt you well after you’ve got the situation resolved. Make sure you check your bank accounts and credit cards regularly, I like to do this once a week. You may want to set up an account with a credit monitoring service as well to make sure no one is opening credit card accounts in your name.
Identity theft happens every two seconds in America. Check out this article to find out how to avoid being a victim!
18) Be careful of inquiries on your credit report
This goes back to something we talked about earlier in the article. Every time someone looks at your credit report, the inquiry is noted. If you have lots of inquiries on your report, it may appear that you are shopping for several loans at once or that you have been rejected by lenders.
Both make you appear a poor credit risk and contribute to a bad credit score.
19) Don’t think that having no loans or debts will improve your credit score
Lenders want to see that you can handle credit, and the only way they can tell is if you have credit that you handle responsibly. If you currently have no credit accounts at all, opening a low balance credit card can actually boost your credit score.
20) Know the difference between soft and hard inquiries
A soft inquiry in when you pull your credit report to look at it. Hard inquiries from lenders will affect your credit score. Checking your credit score too often is an expensive habit. However, you should not avoid checking your credit report because you fear it will make your credit rating worse.
21) Have enough insurance
Not having enough insurance to cover health problems or accidents can cause you to borrow beyond your ability to repay and get you into credit problems. Nobody likes paying every month for something they’re not sure they’ll even need but it is a small price to pay if the situation arises. Check out this earlier post if you’re unsure about how much insurance you really need.
Recap of How to Fix Your Credit Score
- Understand why you have bad credit
- Review your free credit report for errors
- Consider debt consolidation to reduce bills
- Avalanche or snowball your debt to pay off debt faster
- Consider a credit limit increase to improve credit utilization ratio
- Use credit and debt wisely, spending only what you can afford
- Negotiate with creditors to fix your bad credit remarks
- Set up payment reminders and stay current
- Watch your credit score zoom higher!
How does your credit score stack up against the average? I dug into loan data to find everything on the average American’s credit report including how much they owe, how many payments they’ve missed and other facts.
Fixing a bad credit score is not something that will happen overnight but after six months of good financial responsibility, you should notice some improvement. Follow these steps to fix your credit score and save thousands in interest payments over a lifetime.