Like it or not, your credit can make or break you.
Your credit report, history, score: They all wield a huge amount of power over your finances. They can influence your chances of getting a mortgage, an apartment or even a cell phone contract. They affect not only whether you get approved but also what the specific terms of the agreement are, like how favorable the interest rate is or how big of a security deposit you must put down.
So, yeah, it’s pretty important to have good credit. But what if you don’t?
Repairing bad credit is possible but time-consuming. It’s also a minefield. You need to know what steps to take, where to find help and which companies to avoid. The stakes are high, and the consequences could haunt you for years.
Here’s how to do credit repair right.
Why having good credit matters
Lenders use credit scores to measure how risky it is to take you on as a customer.
Their thinking is that if your score is solid, you probably have a history of making on-time payments. If you have a history of making on-time payments, you probably have other good financial habits. And if you’ve got good financial habits, you’re probably going to be a responsible borrower.
Unfortunately, lenders often assume the flip side is true, as well. If your credit score is low, they think you’re untrustworthy.
“There’s a lot of life milestones you have to go through [that involve credit],” says Howard Dvorkin, chairman at Debt.com. “You need to secure a home loan, a car payment, better insurance rates, possibly a job — either you’re going to see a hurdle that you have to get over and explain, or it could cost you more.”
Unfortunately, he adds, many people only discover their credit is bad once they’ve actually been rejected for a loan. It’s better to be proactive.
How to know if your credit needs repairing
What’s a good credit score? According to Equifax, anything between 580 and 669 is “fair,” while scores between 670 and 739 are “good.” Falling between 740 and 799 is “very good.” Anything over 800 is “excellent.”
Equifax is one of the three main credit bureaus, along with TransUnion and Experian. The bureaus collect your personal information into credit reports and link up with companies like FICO, which then generate your credit scores.
For example, FICO scores are based on five major factors: payment history, amounts owed, length of credit history, credit mix and new credit. As these change over time, so does your credit score. Bad habits and errors can sink it, which is why experts recommend you constantly monitor what’s on your credit reports.
To do this, you’ll need to pull your credit report.
Normally, you’re entitled to request one free credit report from each of the three bureaus every 12 months. Recently, though, the rules changed. Due to the pandemic, Americans can access free weekly reports online through April. And because of the 2017 Equifax data breach, you can get seven free Equifax credit reports a year through 2026.
You can see your free credit reports by visiting annualcreditreport.com. Note: This won’t give you a score, but it will tell you what sort of data you’re working with.
Can you repair credit without paying?
Yes. There are companies that will improve your credit for you for a fee (more on that later), but you can do most of it on your own, says Martin Lynch, director of education at Cambridge Credit Counseling.
“If you’re in rebuilding-credit mode where every dollar is presumably precious, why pay for something you can do on your own?” he adds. “You need to know how to do this stuff. It’s part of regaining control of your finances.”
The first step is pulling your credit report — which, as we just learned, is free.
Download your report and make sure everything that appears on it is correct. According to the Consumer Financial Protection Bureau, common credit report errors include closed accounts being shown as open, debts that appear multiple times and wrong balances.
If you spot a mistake on your credit report, dispute it by writing a letter to the bureau. The Federal Trade Commission has an example credit dispute letter on its website that you can use as a guide, but in general you should include your name, address, details about the disputed item(s) and proof that they’re wrong. You’ll need to explicitly request the matter be investigated and deleted.
From there, the FTC recommends you snail-mail the letter and documents via certified mail. You should then repeat and send in a second dispute letter to the businesses that reported the inaccurate information.
Under the Fair Credit Reporting Act, the bureau has 30 days to look into the disputed items and reply to you. (The exception is “if the agency reasonably determines that the dispute by the consumer is frivolous or irrelevant, including by reason of a failure by a consumer to provide sufficient information.”) If the item is indeed found to be inaccurate, the business will fix it, and the bureau will provide corrected reports to entities that recently pulled them.
Unfortunately, if the data is true, you don’t really have a leg to stand on. Negative information stays on your credit report for about seven years. Bankruptcy data sticks around for a decade.
“Look at it as your next lender would look at it,” Lynch says. “Are there obligations that would prevent you from paying off this new loan? Would I make a loan to this person?”
How to remove negative items from your credit report
Assuming everything on the report is correct, you’ll want to move to step two: identifying the items dragging you down.
Look over your credit report for any bills you’ve overlooked or accounts you might have forgotten about. Verify that the statutes of limitations on your debts haven’t run out — if enough time has passed, it might prohibit the collectors from suing you. (Check with an attorney to confirm.)
You should also pay attention to any accounts in collection.
“You’ve got to get those paid in full as quickly as possible to increase your score, because they’re just going to sit out there until you do it,” says Linda Jacob, director of education at Consumer Credit of Des Moines.
Payment history makes up 35% of your credit score, so it’s critical to address late payments and make plans for the future. Jacobs says it’s the first tip she gives new clients.
“Start paying on time every month,” she adds. “You absolutely can’t be late.”
The next hurdle is your credit utilization ratio, which is a measure of how much credit you’re using in relation to how much credit you have at any given time. It’s a myth that you always need to carry a balance on your credit card — in reality, you always want your credit utilization ratio to be under one-third, or roughly 30%.
For example, if you have $1,000 of available credit total, you don’t want to use more than $300.
“Once it goes over that third, it just counts against you,” Jacob says, adding that the problem can easily snowball. “The more you use, the more it counts against you.”
Do credit repair companies work?
There’s no shortage of places that claim to help you fix your credit score.
“Any person can repair their own credit,” Dvorkin says. “Any person can also do their own oil change — you have to have some knowledge, do some prep work, it’s the same thing. We pay people to change our oil.”
If you choose to use a credit repair company, be careful. It’s an area ripe for scammers, so know the facts: Credit repair companies have to follow the Credit Repair Organization Act, which forbids them from lying to you or charging you in advance. Before the company takes action, you’ll have to sign a contract that fully lays out the payments, services it’s going to provide and timeline it’s going to follow. And, most importantly, if you change your mind, you’re allowed to cancel your contract within three days.
How do you know for sure if a credit repair service is scammy? The FTC warns against services that advertise a new “credit identity.” In general, Dvorkin says, any company that makes overzealous claims is a red flag.
“‘We’re going to fix your credit, your score’s going to rise 200 points just because you signed on the dotted line’ … [that’s] probably a sign you should avoid these guys,” he adds.
If you need credit help, Jacob recommends you seek out an accredited credit or financial counselor. Check out the Association for Financial Counseling and Planning Education, the Financial Counseling Association of America or the National Foundation for Credit Counseling.
What to look for in a credit repair company
Though you can repair your credit yourself for free, it can be tedious. Hiring a credit repair service may be an attractive option if you’re short on time — but you still have to be smart about it.
First, manage your expectations. Jacob points out that no company can clean up your credit for accounts that are legitimately yours. Items may be temporarily removed from your report while they’re being investigated, but “once the creditor can prove the account and money owed is in fact yours, they will put it back.” There’s no magic fix here.
Still committed to using a company? Make sure the one you choose is reputable.
“Consumers should look for an A+ Better Business Bureau rating and verified online reviews,” Dvorkin says. “Look for a company with a track record of successfully disputing errors with any of the three credit reporting agencies. There can be a lot of red tape involved with disputing a credit report solo, and these companies know exactly what the credit bureaus want to see in a request for investigation.”
As you’re vetting the services, the CFPB urges you to consider questions like “Is the company being upfront and forthcoming about the services and the fees?” and “What specific services will be provided?”
Finally, remember that no service is a substitute for good lifelong money habits.
“Oftentimes, the most impactful steps a person can take to build credit, paying down credit balances and opening new accounts judiciously, are measures that a consumer should do on their own,” Lynch adds.
Improving your credit score
Let’s move on. Whether you’ve done it on your own or with help, you’ve put out all the immediate fires: You’ve disputed incorrect items on your credit report, handled accounts in collection and gotten your utilization under control. What’s next?
Now that you’re out of crisis mode, it’s time to look at how to build credit. Lynch says one simple way to do this is by becoming an authorized user on a close friend or loved one’s credit card.
An authorized user is someone who gets added to an existing account they don’t own. Authorized users can use the card as if it’s their own, but unlike with a joint account, they’re not responsible for any debt they rack up. They also get shared on the card’s payment history, utilization rate, age and such, which can help increase their credit score.
The financial risks here are mostly for the cardholder, not the authorized user. But as someone trying to build credit, Lynch says you do have to ask some “uncomfortable questions” before sealing the deal.
“‘So, you really do pay your account on time every month, right?’ ‘You haven’t maxed out your credit limit, have you?'” he adds. “It’s weird to ask for that favor and have to delve into how they use that account.”
There are programs that can raise your credit score by expanding your credit file. Experian Boost, for example, gives you credit for paying obligations like your utility bills and Netflix subscription on time every month. Experian Boost is free, but you can also look into paid rent reporting services that will add positive rent payments to your report.
How long it takes to repair credit
Unfortunately, rebuilding bad credit isn’t a fast process.
Lynch says he often encounters people who are so anxious to fix their credit that they end up making rash decisions that lead to crucial mistakes.
Don’t apply for a bunch of new credit cards or close several old accounts without having an overall strategy. With credit, everything is connected. Closing an old account could hurt your history and credit mix. Applying for new cards could result in repeated hard inquiries, which can decrease your credit score. Instead, you may want to get a credit-builder loan or a secured card.
It may take months or years for a person to raise their credit, but it is feasible with some elbow grease and a heavy dose of patience.
“They need to lose their fear about how credit works and get into it,” Lynch says. “They don’t have to be a financial wizard, but they can’t ignore it and continue to be victims forever.”
Fine tune your financial life this year with Money’s expert advice on investing, retirement, building credit, and more. It even comes with a handy checklist. Best of all? It costs you nothing.