How to Repair Bad Credit

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Repairing bad credit is possible but time-consuming. There is no one-size-fits-all strategy, and the process can be a minefield. You need to know what steps to take, where to find help and which credit repair companies to avoid.

Your credit report and score both wield a huge amount of power over your personal finances. They affect not only whether you get approved by lenders for things like a mortgage, personal loan or car loan, but also the specific terms of the agreement, like how favorable your interest rate is going to be.

If you want to learn about the various tools, methods and habits that can help you improve a poor credit score, read on.

Steps to Repair Bad Credit

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1. Check your credit reports for errors and outdated information

The first, most basic step is to download a copy of your credit report. Lamine Zarrad, founder and CEO of StellarFi, a public benefit corporation focused on credit-building, says this is not only important so you can get a sense of where you are in your credit journey — it also gives you a chance to look for fraud, identity theft or other inaccurate negative items.

“With some folks who have bad credit or adverse marks on the credit report, it may not be their fault — it could be an error,” Zarrad says. According to the Consumer Financial Protection Bureau (CFPB), common credit report mistakes include closed credit accounts showing as open, debts that appear multiple times and incorrect balances.

You can get a free credit report from all three major credit bureaus — Experian, Equifax and TransUnion — by visiting annualcreditreport.com. This won’t give you a score, but it can show you negative information and areas that may need improvement. (FYI: You can pull online credit reports from each of the bureaus once a week.)

If you spot any incorrect information on your credit report, you can dispute it by writing a letter to the appropriate credit reporting agency. The Federal Trade Commission (FTC) has an example credit disputing letter you can look at if you’re unsure how to do this. You’ll need to be able to explain what’s wrong and provide proof.

“Dispute those transactions,” Zarrad says. “If you didn’t do it — or someone else did it to you, and there's a mistake — the fastest way to fix it is to go to the bureaus.”

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2. Lower your credit utilization ratio

Credit scores take into account a number of factors. One of the most important is your credit utilization ratio, which measures how much of your credit limit you’re using at any given time compared to your available total.

To calculate your credit utilization ratio, simply add together all of your credit limits from your revolving accounts to determine your total credit limit. Add together your outstanding balances from each account, and then divide them by your total credit limit.

Ideally, your ratio should not exceed 30%. For example, if your credit cards have a total credit limit of $10,000, you generally don’t want to spend more than $3,000 at any given time across your cards.

“It’s a good sign to a lender that you’re disciplined enough, you’re not utilizing all of it, and if you were to fall on hard times, you have something to fall back on,” Zarrad says.

Remember, though, that the 30% threshold is a maximum. When it comes to your credit utilization ratio, Zarrad adds, “The lower, the better.”

There are several ways you can reduce your credit utilization ratio:

• Pay down your balances: By paying down your outstanding balances, you free up more of your credit limit, which decreases your credit utilization ratio.

• Make more frequent payments: Consider making several payments throughout the month instead of waiting for your card bill to arrive. This can help you avoid creditors reporting a high utilization ratio to the bureaus.

• Increase your credit limits: It may be possible to request an increase if you have a long, good history with a specific card issuer. Keep in mind that it might cause a temporary drop in your credit score by triggering a hard inquiry, but it’s usually only around 10 points or less.

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3. Remember to pay your bills on time

Payment history makes up 35% of your credit score, so it’s crucial to avoid late payments. “Payment history is so impactful on a credit score. Late payments on your credit bills [are] about the worst thing you can do to yourself,” Zarrad says.

If you have late payments, they will stay on your record for seven years from the original delinquency date. However, the impact on your score depends on how late you were. For example, a 30-day late payment will hurt your score less than a 60-day late payment. Also, as time goes by, the late payment’s impact on your credit score lessens, especially if you continue paying your bills on time.

You can use the following tips to help you pay your bills on time:

• Make a list of all your monthly bills, such as your mortgage, rent and credit cards, and their corresponding due dates.

• Use a calendar to organize all of your due dates. Note that calendar apps can generally send you notifications in advance to remind you when your due dates are coming up.

• Subscribe to autopay whenever possible so your payments are deducted from your account automatically, but remember to use an account with enough available funds.

If you need help creating a repayment strategy, reach out to a certified financial planner or a credit counselor. Nonprofit organizations like the Association for Financial Counseling and Planning Education and the National Foundation for Credit Counseling can connect you with one.

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4. Become an authorized user on someone’s credit card

An authorized user is someone added to an existing credit card account by the primary cardholder.

Authorized users can use the card as if it was their own, but they’re not responsible for monthly payments or any credit card debt they rack up. And since they're sharing the card’s payment history and utilization rate, this can increase the authorized user’s credit score over time.

However, being an authorized user will only help your score if the primary cardholder makes timely payments. If not, your credit profile could be further damaged. There are also potential risks for the main account owner if the authorized user accumulates more debt than they can pay.

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5. Use a program to boost your credit score

Some programs can improve your credit score by expanding your credit file. They do this by reporting alternative data that is not typically included as part of your credit report.

Experian Boost, for instance, can enhance your credit file by reporting payments made to streaming services, including Hulu and Netflix. This free service can also report your phone, utility and rent payments (more on that below).

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6. Use a rent reporting service

If you’ve been paying your rent religiously, you can use it to your advantage. Some landlords, particularly those who manage multiple properties, use digital platforms to keep track of their tenants' payments — and also report them to the credit bureaus.

This can help your credit because it establishes that you’re a person who — say it with us — has a history of paying their bills on time. Ask your landlord or property management company if they’re signed up with (or willing to sign up with) a service like Esusu.

If your landlord doesn't use a rent-tracking platform, you can always subscribe to a rent reporting service like Rental Kharma or CreditMyRent. These services post your positive rental payments to your report for a monthly fee. There are also free alternatives like Piñata, which reports on-time payments to TransUnion only.

However, note that some commonly used versions of the FICO score don’t use rental payment information when calculating scores.

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7. Pay down your debts

One approach to begin boosting your credit is simply to pay down your debts. Decreasing your outstanding balances or eliminating debt altogether can improve your debt-to-income ratio, which is used to determine if you can effectively take on more debt.

A reliable way to settle your debts quicker is by paying more than the minimum. Try adding a little extra to your monthly payments or making more than one payment each month when possible. If you have more than one debt to pay off, focus on those with higher interest rates first to save more money in the long run.

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8. Consider debt consolidation

Debt consolidation consists of bundling multiple debts — such as credit card balances, student loans, or medical bills — into one loan. This often leads to a lower interest rate or a lower monthly payment when compared to individual bills. Debt consolidation loans benefit those who have trouble juggling multiple due dates or have various high-interest credit card balances.

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9. Avoid bad credit habits

Try to avoid applying for many new credit cards or closing several old accounts without a larger financial strategy. With credit, everything is connected, so closing old accounts and immediately opening new ones could shorten your credit history length and hurt your credit mix.

For example, applying for several new credit cards — say, a bunch of retail cards at various stores — in a short period of time could result in repeated hard inquiries, which can decrease your credit score.

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10. Be patient

Rebuilding bad credit isn’t a fast process and often requires changing your financial habits. Negative marks or delinquencies, such as missed payments, can stay on your credit report for up to seven years, while some types of bankruptcies can stay on your report for up to a decade.

It may take a few months — or even years — for a person to raise their credit, but it is feasible with some elbow grease. “You’re not suddenly going to have an improved score if you have bankruptcy or a history of missed payments or late payments,” Zarrad says.

Keep in mind that it may be challenging to get approved for new accounts while you fix your credit. However, if you need a loan, read about the best bad credit loans and the best personal loans for bad credit to find a lender that might be able to help.

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Do credit repair companies work?

Though you can repair your credit yourself for free, it can be a tedious process, especially if you’re unsure what you’re looking for. That’s when hiring a credit repair company can come in handy.

“Any person can repair their own credit,” says Howard Dvorkin, chairman at Debt.com. “We also pay people to change our oil, but any person can do their own oil change — you have to have some knowledge and do some prep work. It’s the same thing.”

If you choose to utilize credit repair services, make sure the provider is legitimate, as the credit repair business is an area rife with scams.

Bad actors prey on distressed borrowers who are desperate for a quick fix, often “falsely claiming” they can remove negative info from your credit report, according to the FTC. The commission reports that there have been hundreds of lawsuits “against these bogus credit-related services.”

Here are some tips to avoid credit repair scams:

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Review your rights

Credit repair companies have to follow the Credit Repair Organizations 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 you'll have to make, the services it will provide and the timeline it’s going to follow. And, most importantly, if you change your mind, you’re allowed to cancel your contract within three days of entering into it.

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Know what credit repair companies can and can’t do

As detailed above, building and improving credit takes time. Any company that makes overblown claims, like guaranteeing to fix your credit without first evaluating your case, is probably a scam. Ditto any service that offers to create a “new credit identity” for you or vows to remove negative, but accurate, information from your credit report.

In general, you can’t take anything that is true off your report. Disputed items may be temporarily removed from your report while they’re being investigated. But if they’re ultimately found to be legit, they’ll come back.

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Check the company’s reputation

Research the credit repair company’s track record by looking it up on consumer review websites like the Better Business Bureau.

Another tip, according to the CFPB, is to ask yourself questions like “is the company being upfront and forthcoming about their services and fees?” and “what specific services will be provided?” as you’re vetting the companies.

Remember: There is no magic fix to repairing bad credit. If you need help, consider finding a reputable credit counseling agency. Many will provide you with actionable advice from trained experts for free.

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Summary of How to Repair Bad Credit

Fixing your credit can be a lengthy process. But in the end, it is worth it since your score can drastically impact many parts of your life. Credit monitoring, on-time monthly payments and healthy financial habits are keys to having better credit. Be patient and stick to a strategy that's been proven to succeed.

Bad credit can limit your financial options. However, there are lenders willing to work with subprime borrowers, so don’t let it hold you back. Learn more by reading our guides on how to buy a car with bad credit and how to buy a house with bad credit.

Heidi Rivera contributed to this story when it was originally published in 2021. This is a new version of the story with updated information.

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