How To Repair Credit: Expert Tips to Improve Your Score

The Consumer Financial Protection Bureau (CFPB) classifies credit scores in five ways, considered borrower risk profiles; deep subprime, subprime, near prime, prime, and superprime. A super-prime score falls within the range of 720 or higher. A sub-prime score, on the other hand, is between 581 and 619. And a deep subprime score falls below 580. 

If your credit score falls in the sub-prime or deep subprime category, you must know how to repair credit and improve your credit score. A low credit score such as this will prevent you from accessing competitive interest rates, high borrowing limits, and borrowing flexibility. 

Highlights & Key Takeaways

• If you have a subprime or deep sub-prime credit score, you need to work on repairing your credit report 
• Paying your bills on time and keeping credit card utilization under 30% will have the biggest impact in helping you repair your credit
• If you take steps to repair your credit, but you are still struggling, you may want to pursue credit counseling
• Aiming for a credit score over 700 will help you save money on interest rates and give you more borrowing flexibility

15 Steps You Can Take To Repair Your Credit 

The lower your credit score, the bigger a risk you appear in the eyes of lenders and creditors. As a result, they may be more hesitant to offer you lucrative loan rates. 

Step 1: Obtain Copies of Your Credit Reports

The first thing you need to do (and something you should do each year anyway), is get access to your credit report. You can obtain your credit report at annualcreditreport.com or through one or all of the three credit bureaus, Experian, Equifax, and TransUnion. Though you may only be able to access your credit report for free once per year, another approach is to sign up for a credit monitoring service. These services alert you when there has been a change to your credit reports. Think of this as a trigger to tell you to look at your credit report or contact your creditors to see what is going on.

Step 2: Examine Your Credit Reports for Errors

When looking at your credit report, look for these common errors.

• Incorrect accounts
• Account reporting mistakes
• Inaccurate personal information
• Reported as deceased
• Reported as being on the Department of the Treasury’s Office of Foreign Asset Compliance List of Specially Designated Nationals, referred to as the terrorist watch list, the OFAC List, or the OFAC/SDN List

Don’t assume, either, that something fixed on your credit report in the past will remain fixed. It’s not uncommon to see data management errors such as the reinsertion of incorrect information after it was corrected.

Step 3: Dispute Negative Errors You Find on Credit Reports

If you find an error on your credit report, you should file a dispute with the applicable credit bureau, Experian, Equifax, or TransUnion. Be on the lookout for incorrect personal information, wrong payment dates, indicators that you have accounts you have never heard of that are in collections, or balances that seem too high compared to what you believe your balance to be. Even the smallest error can be an indicator of identity theft or can be keeping your credit score lower than it should be. Filing a credit report dispute will not negatively affect your credit score; it can only help it.

Step 4: Pay Off Any Late or Past-Due Accounts

Your payment history represents 35% of your overall credit score. So, if you fail to make up your payments on time (usually within 30 days of your due date), not only can you see a ding to your credit score of up to 180 points, but the creditor may send your account to a third-party collections agency.

If you are overdue on any payments, take the time to get caught up now. Take the following steps if you have any accounts charged to a collections agency.

• Check your state’s statute of limitations, which sets a maximum time limit during which the agency can collect on the debt. 
• Negotiate a payment plan with the third party agency for any accounts still in collections.
• Tell the collector you want to make good on your account and would like options. Be sure to ask which options will result in a payoff to remove the collections charge from your credit report.

You should know that collections accounts can remain on your credit report for up to seven years, starting when the account first went delinquent and even if you have paid the account in full. However, unpaid collections can make you look bad to potential creditors, so you should still follow through and pay what you owe.

Step 5: Negotiate with Creditors to Reduce Payments

Take a look at your budget to see where your money is going every month. If you are spending too much on your wants, such as weekend getaways, concert tickets, or even a new handbag or power tool, you may want to change your budget. Further, if you spend over 50% of your income on your needs (housing, gasoline, utilities, groceries, etc.), you may need to make some lifestyle changes.

If you can’t make any more tweaks to your budget, you may want to negotiate a revised payment or settlement plan with your creditors. Focus your efforts on a new payment plan before pursuing a settlement. The latter can result in a pretty hefty dent to your credit score that will take a long time to go away.

Take these steps to negotiate with your creditors.

• Gather your budget information, account numbers, etc. to ensure everything is handy for your phone call. And take a moment or two to write down what you want help with to stay focused during your call. 
• Make the call to your creditors. Be specific when you call. Tell them your situation and tell them you want to negotiate better terms to help you follow through with your financial obligations.
• Ask for a lower interest rate. This can not only help lower the amount you need to pay each month, but it can save you a lot of money in interest over time.
• Ask about a repayment plan. This is a wise alternative to a loan default. Your creditor may be able to offer you a forbearance agreement or a long-term repayment option.
• Offer a one-time payment, even if it is less than the amount owed, to help reduce the amount due on your debt and save the lender money.

Step 6: Increase Limits on Existing Credit Card Accounts

Increasing the limits on existing credit card accounts might seem counterintuitive since increasing a credit limit increases your spending ability. But, your credit utilization represents 30% of your credit score. Utilization calculates the amount you owe on your credit cards compared to your total credit limits. And creditors like to see utilization at 30% or below. If your credit card has a $5,000 credit limit, you should keep your balance at $1,500 or under.

By calling to increase your credit limits, you can open up that utilization a bit. For example, if you had a credit limit of $5,000 and get it increased to $7,000, that $1,500 balance now only represents just over 20% of your available credit.

Step 7: Make Sure You Have a Diverse Mix of Credit Types

Many borrowers don’t realize that too many credit cards or personal loans are bad. And if you want to get approved for a personal loan with good credit eventually, you want to ensure you don’t have multiple other loans outstanding. A good credit mix can help improve your credit score. It represents 10% of your credit score. 

Too many credit cards or personal loans can hurt your credit score, preventing you from accessing the best interest rates and loan terms when needed. Strive for a healthy balance of revolving and installment credit to achieve satisfactory credit diversification. 

Your credit cards are your revolving credit. Installment credit involves student loans, auto loans, mortgages, and personal loans. Having a good variety of credit, such as a mortgage, student loan, auto loan, and a few credit cards, shows creditors that you can handle multiple loan types. And this strategy can boost your credit score, helping you to repair your credit.

Step 8: Keep Balances Well Below Your Credit Limits

We’ve talked about the idea of asking your creditors for a credit limit increase to help improve your credit utilization factor. And while that can be very beneficial, it’s not a one-and-done technique. Once those credit limits are higher, or even if you can’t get an increase, you need to pay attention to how much you are spending on those credit cards each month.

If you have balances that are nearing your credit limit, you need to take steps to pay them down. The general principle here is to keep the amounts owed on your credit cards below 30% of your total credit limit. And there are two tried-and-true approaches to paying down your credit card debt and keeping your balances low. 

• Snowball approach - This approach has you start with your smallest balance. Pay that balance off as soon as possible, then roll that payment amount towards your next smallest balance, and so on. However, be sure that you make your minimum payments on all other bills due during this time. Missing a payment is never a good idea.
• Avalanche approach - With this approach, you first focus on paying the loan with the highest interest rate loans. Then, when that balance has been paid off, you put that money toward the account with the next highest interest rate. Repeat the process until you are done paying off your credit card debts. 

The snowball and avalanche methods are highly effective in helping you keep your balances below your credit limits, pay down debt, and helping you repair your credit. This approach works for any loans you may have too.

Step 9: Leave Old Credit Card Accounts Open

It can be satisfying and fulfilling to pay off a credit card. And when you do, the natural next step is to close out that account. But closing out those old accounts is not necessarily the best thing to do. Keeping those unused credit cards open can help repair your credit by helping you benefit from a longer credit history and a larger amount of available credit. 

Keeping old credit card accounts open can help repair your credit in the following ways.

• Improve your credit utilization
• Helps add to the length of your credit history 

Just be sure that when you leave these accounts open, it doesn’t entice you to change your spending habits. It can be tempting to want to spend against that open credit line. But before you know it, your utilization may suffer again, and you’ll face more debt to pay down.

Step 10: Take Out a Debt Consolidation Loan

Debt consolidation loans are an excellent way to help you get a handle on your debts while you focus on rebuilding your credit. These loans effectively pay off the balance on your high-interest credit cards or any loans with a high-interest rate. This helps you go from multiple monthly payments down to one. Your new monthly payment is usually less than those other loans and credit cards combined. Your interest rate will likely be lower too.

Here are a few things you need to know about debt consolidation loans.

• A hard credit inquiry from applying for the loan will appear on your credit report, impacting your credit score by about five points.
• New credit represents 10% of your credit score. While you might see a small dent in your credit score upfront, over time and with a history of good payments on your loan, your credit score should start to improve.
• Consolidating your debt with a consolidation loan usually results in a drop in overall credit utilization, which can help you slowly repair your credit, provided you don’t start spending against those credit cards again.
• A positive payment history on your debt consolidation loan helps boost your credit score.

But we must reiterate that you be cautious about not racking up balances on those credit lines that are now paid off. 

Step 11: Avoid Making Too Many New Credit Applications

Applying for new credit can be fiscally irresponsible, especially if you don’t need it. It’s better to look for the right credit card from the beginning. Use that credit card and let yourself realize those benefits instead of applying for multiple cards and dividing up the purchases. This will help ensure you don’t bite off more than you can chew.

The average American has four credit cards, as it is, and the average credit score in the U.S. is 714. If you want to repair your credit, you need to be thoughtful about the number of credit applications you take out. When you decide to apply for new credit, wait at least 90 days between applications (more if possible).

Step 12: Always Pay Your Bills on Time

The highest scored factor when it comes to your credit score is your payment history. Making your payments on time represents 35% of your credit score calculation. Late payments can cause your credit score to drop by 180 points and remain on your credit report for seven years. 

One way to ensure you always pay your bills on time is to set up autopay with your bank or the applicable credit cards to ensure you never miss a payment. When you do this, pay attention to your utilization so that the automatic payment amount is enough to meet the minimum and keep your balance-to-credit limit ratio under 30% each month. 

Here are some expected benefits of paying your bills on time each month.

• Saves you money by avoiding fees and lowering the amount of money you pay towards interest every month
• Ensures you are not without gas, electricity, water, or sewer utilities
• Helps you rebuild your credit 
• It’s good for your mental health as it lowers your stress level when you don’t need to consistently worry about your finances and ability to make your payments 

Step 13: Pay Balances in Full Whenever Possible

Some borrowers mistakenly believe that carrying a balance on their credit cards can help their credit. But this is not true. The credit bureaus look at your payment history, the total of your debts (your utilization), the length of your credit history, new credit you may have applied for, and your mix of credit.

So, while it is good to use your credit cards now and again to demonstrate responsible borrowing habits, there is no benefit to keeping a balance on your account. When you don’t pay your bills in full every month, you are also subject to interest accruals, making the amount you spend a little bit more expensive.

Paying your balances in full can help you repair your credit because it shows healthy payment behaviors and lessens your overall debt.

Step 14: Prioritize Payments on High-Interest Accounts

When you spend on your credit card and don’t pay your balance in full each month, your purchase suddenly becomes more expensive. The average interest rate on a credit card today is 24.15%. Consider this example using this handy interest rate calculator. Say your credit card has a zero balance, and you go on a shopping spree at your favorite department store. You spend $200 on a new pair of shoes and an outfit. With an interest rate of 24.15% and a $30 minimum monthly payment, paying off that purchase will take you eight months. Plus, you’ll pay an additional $16.91 in interest.

Now that that scenario and make it a bit more extreme. Say your credit card balance is $10,000. At the same interest rate of 24.15% and a $250 minimum monthly payment, it’ll take you six years and eleven months to pay off your balance. Over that period of time, you’ll pay $10,511.19. And this assumes you don’t spend any more money on that card during that period of time.

For this reason, if you want to repair your credit, you should prioritize paying off your high-interest accounts. The avalanche method is highly effective in this scenario.

Step 15: Work With a Reputable Credit Counseling Agency

If you have tried to make changes to your budget and have worked towards paying off your debt, but you are still struggling, then you may want to work with a reputable credit counseling agency. Credit counselors can advise you on your money and debts, help you create a budget, and offer money management workshops that you can take to build your financial literacy. 

A credit counselor can help you do the following.

• Manage your money and debts
• Develop a revised budget that allows you to live within your means
• Get a copy of your credit report and scores
• Take advantage of educational materials and workshops
• Participate in a debt management plan to pay down your debts

A debt management plan can provide many benefits and is a better solution than opting for bankruptcy or allowing your accounts to get charged off to a third-party collection agency.

• You’ll receive professional advice on your budget, debts, and goals
• Previously charged fees may be waived, thus lowering your monthly payments
• Debts will be deleted sooner 
• You’ll only have one monthly payment for your credit cards and loans that were included in the plan
• Your accounts will become current
• You’ll develop better financial management skills and accountability

5 Borrower Risk Profiles

Part of understanding how to repair your credit comes in understanding how credit scores are classified and how they are viewed in the financial services industry. Consider the following borrower risk profiles as assigned by the CFPB. These terms are often what you hear newscasters mention when they are discussing the health of the economy.

It’s also important to note that the average credit score in the U.S. is 714. If your score is below 714, and especially anywhere in the new prime or lower risk categories, you need to take steps to repair your credit. If you don’t, you’ll pay higher interest rates and may not have access to the various loan products you desire. 

Why Is It Important to Repair Your Credit?

If your credit score isn’t in the good range or considered at least prime according to the CFPB, you will want to take steps to repair it. Low and subprime credit scores usually mean higher interest rates, which means higher finance charges on your credit card balances. But your low credit score can also work against you professionally. Though you can certainly get a job with bad credit, you might be limited in the jobs you can get. 

There are more reasons to repair your credit too.

• Save money on interest
• Less need to pay security deposits
• Lower insurance rates and premiums
• Less need to spend cash
• High credit limits
• No debt collector harassment
• Ability to purchase a home or get a nicer apartment
• Less stress 
• Less financial pressure on your partner
• No need for a co-signer
• More flexibility to start your own business 

How Long Does It Take to Repair Your Credit?

How long it will take to repair your credit will depend on various factors. For example, negative factors such as late payments, collections, and Chapter 13 bankruptcy can remain on your credit report for seven years. Chapter 7 bankruptcies remain for up to ten years. Though bankruptcy and these other things can impact your credit history, there can be other reasons your score is low.

Negative information will affect your credit score less as time goes by. But, you should understand that account delinquencies such as charge-offs or collections take longer to recover from than a handful of missed payments. It may take 12 to 18 months to repair your credit score from the fair range to a good score. It will take longer to get an excellent credit score that can help you qualify for a personal loan for excellent credit.

Read on for some additional tips to help you repair your credit.

Additional Tips for Repairing Your Credit

If your credit score isn’t in the good range on the FICO scale (between 670 and 739), you should make it a priority to repair it. Most consumers will need access to credit products occasionally, whether to buy a home, finance a car, or even get a student loan. A better credit score can help you obtain a lower interest rate and more flexible borrowing terms. In addition to following the steps outlined previously, here are some other things you can do to help you repair your credit.

Learn What Raises and Lowers Your Credit Score

Understanding how your credit score is calculated can go a long way in helping you understand what raises and lowers your credit score. Here is how your FICO score is calculated.

As you can see, responsible payment history is the most important factor to help you repair your credit. Missing a payment and not making it up within 30 days can cause your credit score to plummet by as much as 180 points. The amounts you owe also impact your credit score in a big way. Carrying over 30% of your available credit balances can impact your score by 40 or 50 points. 

Have a Target Credit Score In Mind

Having a target credit score in mind can help you stay focused on the steps necessary to repair your credit. But you mustn’t try to achieve too much of an improvement in a short period of time. And don’t get discouraged if your credit score isn’t going up. It might be that the credit bureaus haven’t received recent activity from your creditors. A good credit score to target is typically just over 700. The higher your credit score becomes, the better your chances of getting access to competitive credit offers.

Create a Budget and Follow It

Create and follow a budget if you want to repair your credit effectively. The 50/20/30 strategy provides an easy-to-follow principle.

• 50% towards your needs - Mortgage or rent payments, car payments, groceries, insurance, health care, minimum debt payment, and utilities
• 20% towards your savings -  Adding money to an emergency fund in your savings account, making IRA contributions to a mutual fund account, contributing to a 401(k), and investing in the stock market
• 30% towards your wants - This includes gym memberships, a family vacation fund, those streaming service subscriptions we all love, and even that shopping spree at your favorite department store.

Salvage As Many Accounts as You Can

When we spend money using credit cards or personal loans, we ultimately agree to that credit product's obligations. This means that we agree to make our payments on time each month and ultimately pay off the loan at the end of, or before, the loan term. If you have accounts passed off to collections, take the steps to pay off those accounts, even if they will remain on your credit report. Consider debt consolidation if you need to lower your monthly payment. Whatever you do, salvage as many accounts as you can so that you can continue to demonstrate a positive and lengthy credit history.

Spread Credit Disputes Out Over Time

The process of filing a dispute will not impact your credit. Whether or not there will be a change due to the actions stemming from the dispute can vary. For example, whether your score goes up, down, or remains the same will depend on what you are disputing and the outcome of the dispute. But filing multiple disputes at a time can confuse you, and you should prioritize the errors that impact your credit over those that don’t. 

Though an error in your personal information should be corrected, it won’t help your credit score to change it. Focus on errors such as incorrect accounts and account reporting mistakes.

Regularly Monitor Your Credit

While you should check your credit report at least once per year, you should check in on your credit score more often if possible. Many lenders offer free access to your credit score as a perk, so check if this is an option for you. Though it takes 30 to 45 days for creditors to report on new activity, checking your score once every month can ensure your score is changing for the better. And if you see a sudden change in either direction, it can signal that you might want to check your credit report to see what triggered it.

Become an Authorized User

Another method to repair your credit is to ask a trusted family member or friend to add you as an authorized user to one of their active credit cards. This is one of the easiest ways to help you grow that credit score, as all that you need to do is have the person contact their credit card company by phone and make the request. With good financial behavior, such as on-time payments and utilization under 30%, you will likely see your credit score improve in as little as six to 12 months.

Take Out a Secured Credit Card

Opening a secured credit card account is an effective way to help you repair your credit if the score is not where you want it to be. It can also aid in helping you build better financial habits, including managing your credit card utilization and paying your bills on time each month. The process to improve your credit using a secured credit card account takes approximately six to 18 months. However, before you apply for a secured credit card, consider if other strategies work better for you (especially if you are not rebuilding after a bankruptcy or foreclosure).

Use Credit Management Tools

A good way to repair your credit is to use a credit management tool. Credit monitoring services can help you keep tabs on your credit score and can help lower your risk of identity theft. With these tools, you will receive alerts for suspicious activity, such as new accounts and large changes to your balances. You’ll also have access to credit score updates, simulations to help you better manage your credit profiles, and more. 

Don’t Get Discouraged by Setbacks

The key to repairing your credit is patience. Though you may be able to raise your credit score in as little as 30 days, it is more likely you’ll see small rises and dips in your score every month. A minor setback of a few points is not something to be alarmed by, though we understand it might be discouraging. Make sure you continue to focus on making your payments on time. Pay down your debts and keep your spending in check. Over time, your credit score will grow.

Consider Bankruptcy as an Option

Though bankruptcy is typically a last resort, it is an option if you have exhausted all other efforts. People file for bankruptcy due to unexpected medical expenses, loss of income, a mortgage they cannot afford, spending beyond their means, and even lending money to family members or friends. In some cases, bankruptcy might be necessary for more than one of these reasons.

The time it takes to repair your credit after bankruptcy depends on various factors, including the type of bankruptcy you filed.

• Chapter 7 - This type of bankruptcy eliminates unsecured debt, such as credit cards, personal loans, and medical bills, and may stay on credit reports for ten years from the filing date.
• Chapter 13 - This type of bankruptcy allows you to catch up on your secured debts (home, car, etc.) and remains on your credit report for about seven years from the filing date. 

Final Word

All in all, if you are wondering how to repair your credit, you should understand that making your payments on time is the most important thing you can do. Further, setting a budget that helps you live within your means and controlling and streamlining your expenses can prevent you from getting into further trouble or facing economic hardship. Finally, the key to repairing your credit is to be patient. It will take time to see your credit score improve, but it will happen if you are diligent and practice perseverance.