Credit refers to the ability to borrow money or utilize goods and services without having to pay immediately. For example, a credit card allows you to pay at stores, while a home or car loan will enable you to buy a house or vehicle even if you don’t have the funds. In these cases, you enter into a contractual agreement with a creditor, like a bank: They spot you the money, which you agree to pay back later, along with interest.
Your credit score is a measure of your creditworthiness — basically, how likely you are to promptly and completely pay back the funds you owe a lender (money borrowed plus interest). Your credit score is based on your financial history and encompasses everything from whether you pay your bills on time to if you’ve ever filed for bankruptcy. Lenders look at your credit score when deciding whether to enter into a credit agreement with you and to determine how much credit they are willing to extend to you and at what interest rate.
If you have bad credit, it can be difficult to get a loan or a new credit card. This can get in the way of life goals, like buying a house. The good news is that it’s possible to improve bad credit on your own. The below guide provides a step-by-step process for self credit repair. This will better your overall fiscal health and open up more possibilities for you financially.
Your credit score tells lenders how likely you are to pay back the money you owe them in a timely manner. A credit score is a number from 300 to 850. The higher your score, the better — and the more likely you’ll be able to secure loans and credit cards with larger limits and lower interest rates. The credit score model was established by the Fair Isaac Corporation (FICO). Thus, you may also see credit scores referred to as a FICO Score, as this is the most commonly used system.
The FICO model categorizes scores into one of five categories. Here is a breakdown:
Three primary credit bureaus in the United States track these credit scores: Experian, TransUnion, and Equifax. These credit reporting agencies report, update, and save consumer credit histories. They rely on five main factors to determine your rating: payment history, the total amount owed, length of credit history, types of credit, and new credit. We’ll discuss each factor, what they mean, and how you can use them to improve your credit score below.
It’s important that you get a full credit report covering all three agencies at least once per year. Why? Some lenders may only report to one agency, not all three. You need data from all three for a full picture of your credit health.
You can improve your credit score. While it takes time and effort, it’s well worth the improved financial security it will bring you. You don’t want bad credit to bar you from taking out a mortgage to buy your dream home, for example, or prevent you from securing a credit card if you need emergency funds. Putting in the effort now to improve your credit score can provide you with peace of mind and will serve you practically for the rest of your life.
There are a few strategies to improve a credit score. Below, we cover the most impactful steps you can take.
If you’re worried about poor credit, you might put off checking your credit score. Don’t let your worries take over. Knowing your credit score is critical if you’re going to improve it: You have to know your baseline. Your full credit report will also allow you to identify areas in need of improvement, pinpoint potential errors, and find general ways to improve your credit habits. Plus, as you improve your credit score, seeing the positive changes will keep you motivated.
Some people are also scared that the act of requesting their credit report will bring down their credit score. This is a myth. When you request your annual credit report, you submit what’s known as a “soft inquiry,” which won’t hurt your score. What does have the potential to hurt your score is a “hard inquiry.” This occurs when you apply to a lender for credit, and the lender runs a credit check. Since taking on fresh debt may impact your ability to repay existing debts, a hard inquiry can bring down your score — but by no more than about five points, according to FICO.
So, how do you find out your number? According to the Federal Trade Commission’s (FTC) Fair Credit Reporting Act (FCRA), you’re entitled to one free copy of your credit report from each credit bureau every year. There are three ways to obtain your report: online, by phone, or by mail. You can expect your credit report within two to three weeks if you order by phone or mail. If you order online, you will receive immediate access. Here are detailed guidelines for how to request your credit report:
Again, you can request one free credit report per year without financial penalties. In addition, Equifax offers six free reports per year if you sign up for a myEquifax account. However, remember that you need a full credit report covering data from all three credit agencies at least once per year.
Your credit report will provide basic personal information, a detailed history of all your accounts, and a list of all publicly listed financial records, like bankruptcy filings. It will also provide a history of credit report inquiries (by yourself and lenders). Five main factors impact your credit score. Keep these in mind as you read through your credit report so that you can identify areas of improvement:
Check out our guide to reading your credit report for more details on what to look for.
Check your credit report thoroughly for errors. Mistakes in credit reports are more common than you might think: According to the FTC, more than 1 in 5 people have an erroneous negative item in their credit report that makes them look riskier as a borrower to credit issuers than they actually are. Here are some of the types of mistakes you may find:
If you find an error, you should dispute it with the relevant lenders and the major credit bureaus: Experian, TransUnion, and Equifax. Your credit report should provide details on how to carry out a dispute. This can be done online or via mail. If you send your dispute letter by mail, do it via certified mail and request a return receipt, which can prove when you mailed. Why does this matter? Credit bureaus are given a maximum of 30 to 45 days to investigate and reply to your dispute. You want to hold them to this deadline.
To dispute an issue in your credit report, you’ll have to include a copy of the report with the disputed point highlighted, along with a copy of any proof you have to support your claim. For example, if an account you closed is listed as open, you might include the notification from the bank confirming that the account has been closed. Always provide a copy of such paperwork, not the original, if sending by mail. You don’t want to risk losing the originals of such important documents.
If you have past due accounts listed on your credit report, tackle these as soon as possible. Remember, payment history is a big portion of your score (35%), so fixing these issues is a critical step toward a higher credit score. If you can’t pay off the overdue balance in full, contact the creditor to figure out a new payment plan or terms that fit your financial budget.
Also, prioritize settling any charge-offs, which occur once payment is at least 120 days overdue. Charge-offs are very damaging to your credit report. If possible, pay off the charge-off in full. Your credit report will then show that the account balance is $0 and paid. If this isn’t possible, contact your creditor to figure out a plan.
Looking at your credit report will also let you see where you can improve your credit habits. Maybe you pay your bills regularly, but you always pay them late, for example. Late payments negatively impact your score. You might choose to set up automated monthly payments to avoid this issue in the future. Here are some good credit habits to adopt:
Outstanding credit card balances are another factor that can seriously bring down your overall credit score. When you make your budget, allot a set amount to pay off your credit card balance every month. Alternatively, you can enlist the help of a professional company. Note that credit agencies analyze your credit card debt as a ratio of your limit. So, if you have a card with a $1,000 limit and have spent $700, you’ve used 70% of your limit. If your card has a $2,000 limit and you’ve spent $700, you’ve used just 35% (which is better).
While self credit repair is possible, it can be a tedious and time-consuming process. If you’re feeling overwhelmed by the prospect, credit repair companies like Credit Saint can help. Our experts have the knowledge, experience, and resources to handle critical credit builder tasks, such as:
Trust Credit Saint’s credit restoration services to help you challenge inaccuracies in your credit report. . Our credit repair packages are designed to help address your financial health, tackling everything from score tracking to creditor interventions. Are you ready to get started? Complete the online form. Do you still have questions? Check out the Credit Saint FAQ for more details.
There are steps you can take to improve your score in as little as 30 days, such as successfully disputing inaccuracies in your credit report and paying off past balances.
The FICO model covers five credit score categories, ranging from poor to excellent. A credit score of 650 is considered “Fair.”
Eliminating damaging inaccuracies in your credit report, addressing charge-offs, and paying off past-due balances are three ways to improve your credit score quickly.