This post is by our regular contributor, Kristi.
Have you ever wondered why a credit score is so important?
Employers, banks, and even landlords like to check your credit score as a measure of your trustworthiness. The better the score you have, the more trustworthy you’ll appear to anyone interested in checking.
A better score will also help you financially since the people with the best scores have access to more credit, better interest rates, and better reward cards.
If you have a bad credit score, improving your number may feel like a daunting impossibility, but it really isn’t. There are steps you can take to fix bad credit.
Just remember, fixing a bad credit score won’t happen overnight. It takes slow and steady progress. If you want to fix a bad credit score, use these seven steps. They’ll help you get to where you want to be financially.
1) Check your credit score
The first step to improving your credit score is to know what your credit score is. You can’t fix it if you don’t know for sure that it’s broken. The three main credit reporting agencies are required, by law, to give you one free credit report each year.
Thanks to the amended Fair Credit Reporting Act, consumers can request one free copy of their credit report from each of the nationwide credit reporting companies (i.e., Equifax, Experian, and Trans Union) every 12 months.
You can order your free credit report online at www.annualcreditreport.com, by telephone at 1-877-322-8228, or even by snail mail.
You can choose to get your score at separate times from each agency, or you can get them all at once. Although, seeing your score from all three at once will give you a more accurate picture of your credit score.
2) Dispute any credit errors
If you receive your credit report and believe that it contains false information, an inaccurate credit history, or shows accounts that you never applied for, you can apply to have this information removed. Disputing credit report errors can mean the world of difference for your credit score. It’s also one of the quickest ways to improve your score.
The first step to fixing the problem is to tell the credit reporting company, in writing, what information you believe to be false or inaccurate. The second step is to tell the information provider (i.e. whoever provided that information about you to the credit reporting agency), in writing, that you dispute an item in your credit report.
From there the agency will review your complaint and take all evidence into consideration, either removing that history from your report or deciding that your complaint isn’t valid.
3) Use a budget to keep your finances in line
We don’t all need to go to such drastic measures to improve our credit scores. If your score is average to good, you most likely don’t need to go seeking professional credit counseling. Sometimes, something as simple as a personal budget can help you manage your resources to ensure that all bills get paid on time.
Personal Capital has a great budgeting tool that I personally have found really helpful. Whatever system works for you, simply making sure you have a system in place will go a long way to improving your credit score over time.
4) Make payments on time
Your payment history affects 35% of your Fico credit score. If you want to start improving your credit score, you need to do your best to make all of your payments on time. Any debt that has gone unpaid for 150 days can seriously affect your credit score.
You need to make sure to pay, especially, your mortgage payments, credit card bills, personal loans, and medical bills on time. Paying bills on time, ensuring that a bill never goes to collections, and building a good payment history will help slowly to improve your credit score.
5) Get out of Debt
While not always easy, lowering your overall debt is one of the best ways to improve your credit score, because any outstanding debt can negatively affect your credit score.
So what do you do if you have credit card debt? Do everything you can to get out of debt. If you feel like you can’t manage your debt on your own, you could seek help from a credit counselor or look into a balance transfer credit card to consolidate your debt. The fastest way to reduce your debt is to find a way to put a higher monthly allotment towards your debt. You could reduce your spending in other areas by getting rid of TV or joining a cheaper cell phone plan, or you could pick up a side hustle or part time job to use the money for debt reduction.
Sell some of your clothes for cash, become an Uber driver, or get paid to write for blogs. Start a landscaping business, sell things on EBay, or flip things for profit on Craigslist. There’s literally thousands of ways to earn extra income, pay off debt, and improve your credit score.
6) Seek out a Credit Counselor
If you feel burdened by your debt, feel like there is no way to get out of debt, or can’t seem to make a budget work for you, contact a credit counselor through a non-profit organization. Reputable organizations can help you build a budget, manage your money, and even offer free educational tools or workshops. Working with a credit counselor could be the solution you need to help you get out of debt to rebuild your credit score.
Be wary of disreputable companies, though. Always ask for them to send you free information about their company and their services without providing information about your situation. If they won’t, it’s a red-flag that they may not be an honest company or a company that has hidden fees, and you should seek help elsewhere.
7) Build a Good Credit Card History
It seems like a major catch-22. You can’t have a good credit score without building a credit card history, but you can’t build a good credit card history without having a good credit score. How are you supposed to prove that you can handle a credit card if no one gives you one, right?
Believe it or not, there are actually some pretty great credit cards available to people with low to no credit scores. While unsecured cards are more difficult to find, they do exist. Your best chance at proving yourself though is to apply for a secured credit card, where you front the money available on your card and essentially extend a line of credit to yourself. By using the card and paying the amount in full every month, you’ll begin to build a history of trustworthiness on your credit report.
Slow and Steady Improves your Score
The financial world often likes to make the comparison between changing your financial situation and losing weight, because the comparison holds true. Just like losing weight and getting healthy takes hard work, budgeting (of calories), and steady progress, so too does fixing your credit score or your financial situation.
Slow and steady can be really frustrating when you just want to see results now, but, unfortunately, fixing your credit score takes time. There are no quick fixes, but that doesn’t mean you can’t work towards improving your credit score over time. Remember, slow and steady wins the race improves the bad credit score.
Have you ever worked to improve your credit score? What process did you find to help the most?
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Good overview Kristi! It’s been some time since I had to do much of anything to improve my score, but have done a number of these things. I always find it to be a hassle to dispute anything – I’m a Jr. which means I’ve had to dispute numerous things as stuff for my Dad has shown on on my report.
This post is great and very proactive. I am currently repairing my credit after years of having no idea why my credit score was important what even factored into it, until it was too late. My first two steps of the year have been to make hefty payments towards my student loans and open one new credit card. I have a few more steps to take but I think I’m on the right track and it’s only the first week of the year!
I’ve been lucky that my score has always been pretty good. Then again, my mom made sure I picked one credit card offer before I left for college. She told me not to open any more of them. So I didn’t have too much credit, and I always paid in full.
That said, it’s definitely good to check your score. When we refinanced a couple of years ago, we were shocked to find out we’d been put into collections by our old apartment building. I guess we failed to leave a forwarding address, but we DID have our mail forwarded. Apparently, they just never thought to try that, so we didn’t know that we owed $800. Grumble grumble.
FrugalRules Oh man, that sounds frustrating! I hadn’t ever even thought of the problems that might arise when someone shares your name.
LewisandWife Wow, it sounds like you’re definitely on the right track! Good for you for deciding to take action!
AbigailP Were you able to dispute the claim after you talked to the old landlord?
Okay I admit that I was a little obsessed with mine for a while, but I learned that it just takes time. Pay your bills on time. Don’t apply for new debt. Pay off credit card debt.
houseoftre You’re right! Stressing and obsessing does nothing to help your score. You have to do your best and give it time.
Great suggestions. One I might add is once someone receives their credit reports from the three consumer credit
reporting companies, they check their personal information such as Social Security number, the
spelling of their name, current address, previous addresses, and date of
birth for completeness and accuracy.
Credit scores are a bitter reality of our financial lives because we
all wish they didn’t exist. It does help a lot to pay your utility bills
on time and to use credit cards responsibly. Logic would suggest that
it’s best to stay away from debt to have a high rating, but in reality,
you need to keep taking out credit and then repaying it promptly to stay
at the top of the game.
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