How to Repair Your Credit

Five Parts:Repairing Credit Quickly to Make an Immediate ImpactChanging Your Money HabitsLearning Your Credit ScoreRepairing Negative Information on Your Credit ReportBuilding New Credit

We all know that good credit is important, but most people struggle from time to time with too much debt, loss of income, or other financial emergencies. Collection agencies start entering the picture when payments are late or incomplete. People often file bankruptcy hoping for a new start, only to find their future credit is negatively affected for seven or more years. Understanding how to repair your credit is a far better alternative emotionally and financially.

Part 1
Repairing Credit Quickly to Make an Immediate Impact

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    Review your credit reports for accuracy. Your report may contain inaccurate information or might be missing important credit information. Contact the credit reporting agency in writing immediately to fix any errors. Be sure to provide complete and necessary information so that the agency can complete an investigation and repair any inaccuracies.[1]
    • The credit reporting agency is required to investigate and respond to your dispute, usually within a 30-day period. If a correction is made, the creditor must notify all three credit reporting agencies so their files can be changed.
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    Set up automatic payment reminders. Paying your bills on time is the most important factor in figuring up your credit score. Setting automatic deductions from your banking account for house and automobile payments, utilities, and credit cards will help you make timely payments. If auto payments aren't possible, set payment reminders on your calendar or budgeting software.[2]
    • Make sure to coordinate your future income deposit dates with your automatic withdraws before you set up auto payments. For example, if you are paid on the 1st and 15th of each month, set the automatic payments to be disbursed on the 4th, 5th, 6th, 17th, 18th, and 19th of each month.
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    Stop using credit cards. This is usually the most expensive of debt type, the easiest to use without thinking, and the source of aggressive collection efforts. Keeping zero or low balances on your credit cards will save money and increase your peace of mind. Use cash or your checking account debit card for irregular purchases, keeping your credit cards locked up securely at home.
    • Don't cancel your credit cards. The debts are not canceled, and your credit report will suffer because there's less available credit as you pay off the debt. If you decide that some credit cards must be canceled, choose the ones with the shortest history.[3]

Part 2
Changing Your Money Habits

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    Commit to improving your credit score. Fixing your poor credit is tough work that will require commitment. Distinguish between “wants” and “needs." Ask yourself what you truly can and can't live without. Learn to wait on purchasing wants or luxuries until you have extra cash that is not needed elsewhere.
    • If you have a partner or family, be sure to involve them in the process of fixing your credit. They were probably part of the problem of running up too much debt to handle, and they need to be part of the solution.
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    Set a budget and stick to it. A budget is simply a plan to direct parts of your income to specific expenses. Budgets can be simple or detailed. Determine how much you can comfortably set aside for savings and how much you can reasonably afford to pay of your debts. Try to lower your fixed expenses as much as possible so you can put more money towards fixing your credit.[4]
    • For example, a reasonable budget might break down like this: 50% towards fixed costs (like housing, utilities, car payments, etc.), 20% towards financial goals (savings, pay down debt, retirement fund), and 30% towards flexible spending (groceries, gas, shopping, entertainment).[5]
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    Consolidate your high-expense debts. Credit card and short term debt can be very expensive. If your problems come from credit card or trade debt and you have a home or a whole life insurance policy, you might consider borrowing money on the policy or a second mortgage on your home. Then, pay off the more expensive short-term debts.
    • The risk in debt consolidation strategies is that you don't change your old buying habits and you build new credit balances, multiplying overall debt. If you consolidate your debts, you must change your old habits to avoid a repetition of your recent situation.[6]

Part 3
Learning Your Credit Score

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    Order your free credit reports. Credit reporting agencies are required to give you a free copy of your credit report once a year, when you request it. You'll need to go to to order the reports.[7] The credit report includes a credit score and your credit history. Businesses and lenders use this to decide whether or not to offer you credit and what interest they'll charge.
    • You can order the free reports (from Equifax, Experian, and TransUnion) all at the same time or at different times throughout the year. Most of the information is the same, so staggering your reports throughout the year will help you follow the progress of your credit repair efforts.
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    Understand your credit report. The report is made of of your credit history and other financial information. It's used to create your credit score, which is a number. The annual free credit reports won't give you a score, they'll just provide you the information that goes into calculating the score. This is the information you'll get with your credit report:[8]
    • Identifying information: your name, address, Social Security number, date of birth, and employment information. (This isn't used to calculate your score, but make sure it's correct; if not, bad information could be tied to your account.)
    • Credit Accounts: reports from banks, financial institutions, and businesses about the type of account you have, your credit limit, the balance, and payment history
    • Credit Inquiries: history of everyone who's asked for your report in the past 2 years, whenever you've asked for credit.
    • Public Records and Collections: state and county court records that include: bankruptcies, enclosures, lawsuits, wage attachments, property liens, and judgments.
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    Understand your credit score. This number, ranging from 300 to 850, represents your creditworthiness. Software developed by FICO and used by the credit reporting agencies determines the score. The scores between agencies should be similar, but there may be differences. It's important to make sure that your information is correct for each reporting agency.[9]
    • Higher scores are considered lower credit risk, but each lender decides how it uses the credit score. For example, Lender A might be comfortable making a loan to a borrower with a credit score of 650 while Lender B requires a score of 700 for an extension of credit at similar terms.
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    Learn what goes into your credit score. Scores are calculated by five weighted factors:[10]
    • Payment history: This includes late payments, the number of accounts with a record of late payments, and negative legal actions such as bankruptcy. This makes up 35% of the final score.
    • Accounts owed: These include the type of accounts, account balances, total amount owed, the ratio of debt to available credit and the percentage of remaining installment debt. This makes up 30% of the final score.
    • Length of credit history: This looks at the age of your oldest and youngest credit account, the average age of all credit accounts, and your use of the individual accounts. This makes up 15% of the final score.
    • Types of credit: How and where you received credit in the past makes up 10% of the final score.
    • New Credit: Several applications for new credit can reflect poorly on your credit score. If you keep the requests within a 30-day period, the score is not affected. New credit counts for 10% of your final score.

Part 4
Repairing Negative Information on Your Credit Report

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    Negotiate with your creditors. Make sure you know who owns your debt and keep in touch with them. Be open and honest with your creditors. If you know you're going to have a late payment or trouble paying, contact your lender. Your lender will most likely be willing to work with you.[11]
    • Make sure you know how much debt you can afford before agreeing to new terms. Every aspect of a debt is negotiable, but there will be no change in the original payment obligations until the creditor agrees to the new terms, preferably in writing.
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    Pay down current and past-due debts first. Don’t fall into the trap of paying off old debts by postponing payments of current debt. The late payment accounts are already reflected on your credit report and score. Keeping credit accounts current helps your score by having good credit sources that are older, rather than new.[12] When paying off past debts, explain to your creditor that you are trying to become current and ask for help. Your creditor might:
    • waive any extra fees or penalties that were charged to the account
    • allow you making up the delinquent amount over several months while staying current on future payments
    • re-age your account to show payments as current, not delinquent. Get an agreement in writing and be sure you fully comply with the new payment terms.
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    Deal with delinquent bills. Paying off delinquent bills won't improve your credit score much, since all that matters now is that the debt gets paid. Paying old debts prevents harmful collections actions from showing up on your credit report.
    • The priority of your payments should depend upon the age, status, and ownership of your debts.

Part 5
Building New Credit

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    Get a secured credit card. Secured credit cards are a great way of having a credit card without the worry the balance will get out of control. You deposit money with the lender and your secured card will have a credit limit of that amount. As you use the card, you simply add to the balance each month.[13]
    • Be aware that some issuers of secured credit cards charge high interest on the unpaid balance (even though payment is fully secured) as well as additional fees. Pay the balance each month in full each month.
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    Get a secured bank loan. Most banks and credit unions will make secured loans to their customers. Borrowing money, investing the proceeds in a savings account at the financial institution as security, and repaying the loan in small monthly payments builds your credit history. The interest paid on the savings account is likely to be 2%-3% lower than the interest charged on the loan. The extra interest must be made from the your other income.[14]
    • Do not use the savings account for any purpose except repaying the loan. Whenever possible, make extra payments from your income to reduce the balance and build up your savings account.
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    Be cautious of high debt balances. As your credit score improves, you'll probably start receiving offers for new credit. Be wary about responding to offers of credit. While having a high level of credit available to you will raise your credit score, using that credit a lot will lower your score.
    • Ideally, you should use 20% or less of your credit availability. For example, if you have total credit card credit of $10,000 available to you, do not let the balance exceed $2000 for any lengthy period.
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    Be persistent. You won't see your credit score dramatically change overnight. Repairing your credit actually means repairing your credit history. The score then reflects this.[15] The best things you can do now, are pay your bills on time and pay down debt. Even then, it will probably take at least 30 days before these actions impact your credit.[16]
    • Unfortunately, some negative history, like delinquencies or bankruptcies, will keep impacting your score for years.[17]


  • If you need to check your credit information and have already gotten your free reports, buy extra credit reports directly from one of the three reporting agencies for less cost and hassle.
  • Each account on your credit report has a rating. A letter followed by a number shows the type of account and the rating. For example, if you have an account, that is rated as an I1 that is an individual account that is paid on time. If you have an account that has a J1, that is a joint account. An I5 could mean trouble. Highlight everything that isn't a 1 and everything that is turned over to collections.
  • If you're searching for lower rates when home or car shopping, try to complete the search within a 30-day period. This way, your credit requests won't negatively impact your credit score.
  • Any lender that refuses you credit or makes changes in the terms of their credit arrangements must give you your credit score.
  • If you dispute something on your credit report, the credit reporting agency must tell you in writing of their findings. They also have to send a free extra copy of your credit report if they make a change because of the dispute.
  • Pay off those debts with the highest interest rate first with any extra cash, a strategy called avalanching. You'll pay the amounts needed to keep your current accounts current and use your excess cash flow to pay down past due accounts one by one in the order of the highest interest rate to the lowest. This will save money in the longest run and is the fastest way to reduce your debts.


  • Don’t hire credit repair services to do repairs you can perform yourself. The repair services can only legally do what you can do. Many credit repair services use questionable, illegal tactics that can get you in trouble.
  • Even if you pay off your credit in full each month, the credit report may show a balance owed on the statement at the end of the month. Note the timing of statements and make payments before the statement is generated and distributed.
  • Don't open charge accounts with department stores. It hurts your score, for the short term. Open credit cards with a bank and never charge over 1/3 of your total credit line unless you can pay it down the same month.
  • Many of the companies appearing to offer free credit reports sell their monitoring service for a fee. The companies make you sign up for the free report and give a credit card, and then automatically transfer you to a paid service after enrollment and a trial period. If you do not cancel the service within the trial period, your credit charge will be automatically charged each month. Make sure you stop the service.
  • Credit rating approaches differ in other parts of the world; this article applies to the situation in the United States. If you live outside the USA, contact your local credit ratings organization for specific details.

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