Bad credit can be expensive and problematic. It can mean you don’t get approved for loans or credit cards, or even that a landlord won’t rent to you. Even if you do get loans with poor or bad credit, they can cost you more in the long run because you might pay a higher interest rate on that credit.
What can you do if you’re facing bad credit? Luckily, you aren’t stuck with this problem, and there are ways you can address it.
Can You Bounce Back From Bad Credit?
You can absolutely bounce back from bad credit. The credit reporting and scoring system wasn’t designed to label people as having good or bad credit forever. Its purpose is to help lenders and others understand your potential creditworthiness in the present, so they can make the best choices for their business. Because of this, the credit scoring and reporting system is designed to be “living” and ever-changing, which means you can improve your credit.
9 Tips for Improving Your Credit
Check out the nine steps to repair bad credit below for ideas on how you might work to improve your credit history.
1. Start With a Copy of Your Credit Report
Get a copy of your credit report. This lets you understand what negative items might be lowering your score.
You can get one free copy of your credit report from each of the three major credit bureaus every 12 months online at AnnualCreditReport.com.
Other ways you can access your credit report include:
- Requesting it after you’ve been denied credit. You should receive a letter letting you know why you were denied. If you were denied based on information in your credit profile, the lender must tell you. You can also use that letter to obtain a free credit report from the applicable bureau.
- Signing up for a free credit reporting service. Some online services provide you with an informational copy of your credit report. Depending on which service you use, it may only include information from one bureau.
- Paying for a credit reporting service. For more access to your credit reports and other services, you can consider paid credit reporting options, such as those through Experian, Equifax and ExtraCredit.
2. Analyze the Negative Factors on Your Score
Once you have your credit reports in hand, look for negative items that could drive down your score. Common negative items include:
- Late payments. Any late payments can bring down your score, but the later the payment — or the more often the issue occurred — the greater the impact.
- Collection accounts. Defaulting on an account and having it go to collections brings your score down.
- Hard inquiries. When you apply for a loan or credit card, the lender may check your credit. This is known as a hard inquiry. Each hard inquiry can have a small, temporary negative impact on your score.
- Bankruptcies or foreclosures. These items indicate that you didn’t pay your debts as originally agreed, hurting your score.
- High revolving credit balances. If you owe at or near your credit limits on revolving accounts, such as credit cards, it can reduce your credit score.
Work to avoid any of these situations to help boost your credit.
3. Dispute Inaccurate Negative Items
Begin your crusade to better credit by addressing any inaccurate items that might be on your credit report. Typos, missing information or straight-up wrong information can cause your credit score to be lower than it should be.
Under the Fair Credit Reporting Act, you have a right to a credit report free of errors. If you find an inaccuracy on one of your reports, you can dispute it with the credit bureau and ask them to investigate it. Simply write a letter stating that you dispute the item and why, and include any documentation you have to make the case.
4. Create a Plan to Address Accurate Negative Items
Consider how you can address any negative items on your report that are accurate. For example, if you’re behind on payments, catching up may help improve things in the future. Paying off open collections or resolving other issues may also make a difference for your future credit score.
5. Begin Building a Positive Payment History
After doing what you can to mitigate negative items on your credit reports, you might want to take actions that help you build positive payment histories. The easiest way to do this is to ensure you’re making timely payments on your existing debt, including auto loans, student loans, a mortgage or credit cards.
6. Add to Your Credit Mix
Credit scoring models take your credit mix into account because lenders are interested in whether you can manage various types of credit. It’s best to have revolving credit accounts, such as credit cards or credit lines, as well as installment loans, such as an auto loan or personal loan.
If you don’t have any installment accounts, for example, a personal loan from Wise Loan might help upgrade your credit mix. You don’t need good credit to get approved, and Wise Loan reports to two of the three major credit bureaus to help you get the biggest benefit of paying your loan on time and as agreed. Apply today; depending on when you apply and how you choose to receive your funds, you may even get the money the same day, or instantly.
7. Pay Down High Revolving Debt Balances
Credit utilization is a big factor in your credit score. It’s the rate at which you’ve used your revolving credit limit on either a credit card or a line of credit account. For example, if you have a credit limit of $1,000 and a balance of $800, your credit utilization is 80%.
According to the Consumer Financial Protection Bureau, keeping your credit utilization below 30% is ideal.
8. Maintain Positive Financial Management
As you move into the future, keeping up with positive financial management is the best way to continue improving your credit score. That includes:
- Paying all bills on time
- Budgeting well so you don’t need to rely on credit constantly
- Managing accounts and keeping balances down
- Choosing to work with responsible lenders when you do apply for credit
9. Get Credit for Paying Utilities
Your cell phone, electric or gas companies don’t report timely payments to the credit bureaus. But you can get credit for those payments on your score by signing up for a service like Experian Boost. This service helps you report these types of payments on your credit report, increasing your rate of timely payment — assuming, of course, you make those payments on time.
The only way to repair bad credit is to stay on top of things, so whatever approach you take, be sure to develop good habits and remain aware of your financial status at all times.
FAQs About Improving Bad Credit
Can I pay someone to fix my credit score?
You can’t pay someone to change your credit score, but you can pay for credit repair services. Professionals who offer these services do things you can do yourself, but they may be able to do them faster and with less hassle because of their experience. That includes ordering your credit reports, filing and following up with disputes and providing you with guidance on how to improve your score in the future.
How long does it take to clear bad credit history?
Most negative items stay on your credit report for at least seven years before they fall off. During that time, they can impact your credit score. However, any item’s impact gets smaller as it ages, and you can positively impact your credit in just a few months and improve it greatly in less than a year in many cases.
How do I get my credit score from 500 to 700?
Some of the best ways to improve your credit score include:
- Paying down revolving debt, such as credit cards
- Making all your current payments on time
- Ensuring you have a good credit mix that includes both revolving credit and installment accounts
- Reviewing your credit reports and disputing any incorrect negative items
How do you get an 800 credit score?
Scores of 800 to 850 are considered excellent. You can get this type of score with a long history of good credit management, which includes paying all bills on time and keeping your credit card balances at 30% or below your credit limits.