|All content presented here and elsewhere is solely intended for informational purposes only. The reader is required to seek professional counsel before beginning any legal or financial endeavor.|
A quarterly report from the Transunion propelled American citizens’ credit card debt to $930.6 billion by the end of 2022—an 18.5 percent increase from 2021. These outstanding debt balances include late, unpaid, and delinquent accounts, giving you a bad credit score in the long run. However, you can still fix a bad credit score by addressing delinquent accounts, reducing debt, improving your financial habits, and many more.
Highlights and Key Takeaways
- A bad credit score ranges between 300 to 600 based on FICO and VantageScore.
- Good payment history accounts for 35 percent of your credit score calculation and is the most crucial factor in how to fix a low credit score.
- A bad credit score will likely deny you new credit lines and additional credit cards.
- There is no definite timeframe to get your bad credit score back up, and it may take one to several years with consistent good credit habits.
8 Proven Strategies to Fix Your Bad Credit
1. Order Copies of Your Credit Report
To know how to fix a bad credit score, you first need to know where you stand in the credit score tier. Falling between 300 to 579 in the FICO range and 300 to 600 in the VantageScore range means you have a bad credit score.
To do this, order copies of your credit report from all three major credit bureaus in the United States, namely Experian, Equifax, and TransUnion. You should be able to get free copies of your credit score from all these three agencies once every 12 months, according to federal law, using the website AnnualCreditReport.com.
You can get one copy from each credit bureau altogether or space them out throughout the year—as long as you don’t get more than one copy within 12 months.
Amy De La Fuente, Director of Public Affairs at Bosco Legal Services mentions: “Federal law ensures that the three major credit bureaus provide only factual and accurate data on your credit score, which can conversely affect your credit card approvals, mortgage rates, and even job applications.”
2. Dispute Any Errors Found On Your Credit Report
You need to secure copies of your credit report to dispute any irregularities or errors that can negatively impact your credit score.
Some of the most common mistakes you can spot on your credit report are
- Mixed file case, which means your credit report includes accounts belonging to another person with a similar name as yours
- Incorrect reporting of accounts as open (when it is already closed) or those reported as late or delinquent when it is not
- Inaccurate data on payment dates
- Debts listed more than once
- Accounts with incorrect balances and credit limit
Irregularities in your credit report usually arise from identity theft and data mismanagement, so it is important to address this by contacting the credit bureau that provided the report by providing a dispute letter if necessary.
According to Mark Pierce, CEO of Colorado LLC Attorney, “There are a lot of cases of identity theft when credit reports remain unchecked. These often are the leading cases of credit report irregularities, especially for debt transactions unknown to the individual.”
3. Address Unpaid, Delinquent, and Defaulted Accounts
The FICO score accounts for payment history as 35 percent of your credit score, while VantageScore considers it ‘very influential’ in calculating your credit score.
Addressing unpaid, delinquent, and defaulted accounts is a huge factor in improving or maintaining your credit score. To get current on unpaid and past-due accounts, here are some points you may want to consider:
Set up automatic payments
You can set up your checking or savings account with auto-debit payments for recurring accounts like credit card bills or car and personal loans, so you won’t need to log in and make payments manually.
Paying your unpaid balances
If you forgot your due date and missed a payment, paying the past due plus the current account will do the trick. If you have no other means to pay them by cash, consider calling your bank for an option to convert qualified purchases to installments or spread past due balances over a certain period.
According to Colin Palfrey, CMO of Crediful, “Paying your dues in full is the only way to get out of debt. While banks allow you to pay at least a minimum amount due, this only eliminates late charges, and your remaining balance will continue to rack up interest on your account.”
Consolidate your debt
If your unpaid and delinquent accounts become too much to handle, try looking into consolidating your debt or rolling all your existing debts into one account or loan, which you can pay flexibly over a period of time.
Settle with your creditor
If you can’t find any workaround, your last resort would be to call your bank or creditor for a settlement plan. This settlement plan would require you to pay a significantly lower lumpsum fee just to finally settle the obligation.
4. Reduce Your Debt
The easiest way how to repair bad credit is by reducing your debt. This means that while paying for your past due and present accounts, avoid drowning in even more debt because of irresponsible spending, paying debt with even more debt.
To reduce debt, here are some tips you can keep in mind:
- Track and budget your expenses
- Pay your bills on time
- Pay off high-interest-bearing debt in cases of multiple debts
- Avoid getting into more debt when you can’t keep up with existing ones
5. Get Credit Counseling
According to a study, participants who have undergone credit counseling showed significant declines in their debt levels as compared to the comparison (non-counseled) group, which was attributed to significant behavioral changes, debt reductions from interventions, and financial literacy.
People who find it hard to get out of debt and are looking for ways to fix low credit scores should consider getting credit counseling—contacting a third party to help you manage your debt. Credit counselors will help:
- Review and study your credit report (including how to fix a bad credit score)
- Give financial advice on how to manage debt and financial habits
- Create a personalized debt management plan
- Communicate with your creditors in negotiating flexible payment terms or lower interest rates
- Give you free learning materials, workshops, and follow-up sessions
6. Improve Your Financial Habits
Improving your daily habits is the first step in getting out of debt and repairing bad credit. Some practices you need to be mindful of to kickstart your financial freedom goals are as follows:
- Pay your bills on time. This goes without saying, but paying your bills in full and on time is the best way how to fix bad credit fast.
- Monitor your credit reports. Instead of taking credit reports only when you need them, make it a habit to request one regularly—annually or quarterly.
- Don’t live beyond your means. If you can’t afford it with cash, don’t buy it.
- Limit your credit cards. Having one too many credit cards will make you think you have a lot of money to spare on too many unnecessary purchases.
- Do away with YOLO. People often get drunk in the YOLO disease—spending too much all at once and the ‘I-deserve-this-today’ mentality. Set your goals and achievement metrics strictly, and reward yourself smartly and accordingly.
- Pack lunch or cook at home instead of eating out. You’ll be surprised at how much money you can save by eating healthy, home-cooked meals instead of ordering food take-out or delivery daily.
- Be financially responsible. Create a personal budget plan, track your expenses, and regularly put money into your savings.
7. Give It Time
Suffering from a bad credit score is an arduous road to follow. Not to mention the pile of debt you have to deal with, getting your credit score back up isn’t as fast and easy as it went down.
According to Equifax, negative information like missed payments, delinquent and unpaid accounts sent to collection agencies, and bankruptcy records can stay on your credit report for at least seven years (up to ten years for some bankruptcy reports).
Jeremy Clifford, CEO of RouterCtrl, says, “A huge outstanding credit and a bad credit score can affect not only one’s finances but also your overall well-being. The battle is long to get a better standing on your credit score, so it is important to keep your eyes on the goal in the short-term and long-term as you keep your finances and habits in check.”
What Qualifies As a Bad Credit Score?
Now that we know how to improve bad credit, what exactly qualifies as a bad credit score?
In the United States there are two credit score metrics providers in the United States: FICO and VantageScore.
|FICO Rating||FICO Range|
|VantageScore Rating||VantageScore Range|
By comparing these two metrics, we can see that there’s not much of a significant difference in the score range for ‘poor’ or bad credit scores, ranging from 300 to 600 on average.
What Causes a Bad Credit Score?
A bad credit score combines many factors, data, credit behavior, and history—accounting for both positive and negative data on your credit report.
As the most commonly used credit score metric, FICO Score calculates credit score as percentages of the following:
- Amounts owed - 30%
- Payment history - 35%
- New credit - 10%
- Length of credit history - 15%
- Credit mix - 10%
With all these factors considered, you are most likely to get a bad credit score if:
- You miss your payment due dates—with payment history accounting for 35% of the credit score calculation, missing a payment is crucial information on your credit report and credit score. The length of when the account is unpaid or delinquent also negatively affects your score.
- You have had your accounts sent to a collecting agency.
- You have charge-offs, bankruptcy history, debt settlement records, foreclosures, and lawsuits.
- You have a high credit utilization ratio—lenders check your credit limits and available credit balances, and it is usually a red flag to have high credit utilization ratios as they may think you may not be able to handle even more debt.
- You close old credit accounts.
- Lenders make a ‘hard inquiry’ when applying for a new line of credit.
What Are the Consequences of Having a Bad Credit Score?
A bad credit score results in serious financial repercussions, especially when taking out a new line of credit and other contractual applications. Here are examples of the implications of having a bad credit score:
You may get denied for a new loan and credit cards
With a bad credit score, you may just be a walking financial red flag for all lenders. Your bad credit score indicates that you do not pay your bills on time, get your unpaid balances piled up, and do not have the financial capacity to manage your loans.
Increase in insurance payments
Insurance companies also have access to your credit score and can use credit-based insurance scoring to calculate the amount of insurance you must pay. Those with bad credit lines are likely not to get the lowest rates insurance companies have to offer.
Anthony Martin, Founder and CEO of Choice Mutual, says, “Insurance institutions also need to insure themselves by examining whether an individual can make regular payments to cover insurance costs. However, some states like California, Hawaii, and Michigan have banned or limited the use of credit insurance scores to determining insurance premiums.”
Renting an apartment
Those with low credit scores may find it harder to rent an apartment in the United States. Landlords usually refer to credit scores to assess your paying capacity and usually look at a 600+ score to even consider approving apartment rent. However, this still depends on a case-to-case basis.
Some states protect against terminating people’s access to basic utilities like electricity, water, gas, heat, and even internet connection. In this case, utility providers may require security deposits for those with bad credit to cover unpaid bills in the future.
How Long Does It Take to Fix a Bad Credit Score?
There’s no easy way out of bad credit, and despite learning how to repair bad credit, getting it back up is not a quick fix.
There’s no definite answer on exactly how long it takes. Credit bureaus will have to observe your payment history and financial behavior for years to assess whether you qualify for a higher credit score.
Additional Credit Repair Tips
Look into Debt Consolidation Loans
If you have multiple unpaid and delinquent credit commitments with no immediate financial capacity to pay, personal loans allow you to take out a single loan to pay all your credit commitments to spread payment by paying lesser interest and late charges.
Be Careful About Closing Credit Card Accounts
Closing credit card accounts doesn’t mean better for your credit score. It is, in fact, quite the opposite. Closing credit card accounts increases your credit utilization ratio, of which the ideal credit utilization ratio to maintain a good credit score should be 30% or less.
Spread Out Your Credit Report Disputes
Disputing irregular credit reports help in correcting your credit score. While it is not true that disputing your credit report results in a lower credit score, the results of your disputes may affect your credit score in the long run.
Avoid Applying for Too Many New Lines of Credit
Having multiple lines of credit can help your credit score by having a higher utilization rate, but applying to too many can also negatively impact you. You’ll have more access to credit and lower the average length of your credit history.
Sign Up for a Rent-Reporting Service
Rent-reporting services are organizations that collect your rent payment history and provide them to the credit bureaus. Signing up for these services (paying the applicable fees) may help improve your credit score.
Consider Bankruptcy as a Possible Option
When you have exhausted all your options, you can consider filing for bankruptcy to get out of swimming debt. However, bankruptcy reports will remain on your records for six to seven years and will most likely reduce your credit score drastically.
According to Jarret Austin, Owner of Bankruptcy Canada, Inc., “While filing for bankruptcy may be a hard pill to swallow, it helps you get out of debt that you cannot handle anymore by freezing interest payments, eliminate your debt and give you a chance for a fresh financial beginning.”
A bad credit score is the accumulation of all your financial habits and incapacities. It only takes several missed payments, a huge outstanding account, or bankruptcy to pull down your credit score drastically, but getting it back up could take several years.
While it takes a long time, learning how to fix a bad credit score is not impossible. Being mindful and vigilant of your credit report, consistently addressing unpaid and delinquent accounts, reducing your debt, and fixing your financial habits are some steps to repair your credit score.