Key takeaways
- A healthy credit score plays a critical role in your financial well-being, impacting everything from loan approvals to job opportunities.
- You can boost your credit score by practicing positive financial habits and patiently establishing new credit.
- You may be able to improve your credit score by looking for errors on your report.
A healthy credit score is more than just a number — it’s a crucial determinant of your financial well-being. Whether you’re looking to secure a loan, rent an apartment or even land a job, a strong credit score can open doors. However, navigating the complexities of credit repair can seem daunting.
There are a few things anyone can do to help reclaim control over your credit score and pave the way toward a brighter financial future. Whether you’re grappling with past mistakes or seeking to fortify your financial resilience, these actionable strategies will empower you to embark on the path to credit recovery with confidence and clarity.
1. Check your credit score and credit reports
Ensuring financial health begins with knowing where you stand. Checking your credit report and credit score is a crucial first step toward this goal. Reviewing your credit report enables you to spot errors, detect potential fraud and gain insights into your financial standing.
Numerous online platforms and financial institutions offer free credit report and score services. Plus, through AnnualCreditReport.com, you can request a free annual credit report from each of the major credit bureaus: Equifax, Experian and TransUnion.
You can also monitor your credit score in a few other ways:
- Check with your bank or credit card provider. Many lenders and credit card issuers provide free credit score tracking. It could be as simple as checking your monthly statement or logging into your account online.
- Speak to a non-profit credit counselor. They may be able to provide you with a free credit report and credit score and help you understand the finer details of your reports.
- Explore other services. Several credit score services offer free and paid-for credit scores. Read the fine print to make sure you aren’t inadvertently signing up for an unnecessary subscription service. Ensure that you’re obtaining your credit scores from reputable sources to guarantee accuracy and reliability.
Monitoring your credit score allows you to track your progress and identify areas for improvement. By staying informed about your credit profile, you can make more informed financial decisions and safeguard your financial future.
2. Review your report and dispute any errors
The next step to repair your credit is to review your reports for errors or discrepancies. According to a Consumer Reports investigation, the number of complaints about credit report errors has increased from 165,129 in 2021 to 443,321 in 2023. If you have an error in your credit report, your credit score may be unfairly low.
It’s a good idea to check your credit report for errors regularly. If you find a discrepancy, file a dispute with the reporting bureau immediately. If the error appears on all three credit reports, file a dispute with each of the three bureaus.
What happens after a dispute?
The Fair Credit Reporting Act (FCRA) requires dispute investigations to be completed within 30–45 days. Upon completion of a dispute investigation, a bureau is required to inform you of the outcome and any resulting actions within five business days.
Once the discrepancy is corrected, it may take a few days for the change to reflect on your credit report. Even though the bureaus are required to handle discrepancies, you should follow up and double-check your report to ensure all corrections have been made.
3. Establish positive financial habits to build good credit
Building good financial habits will be the most effective step for rebuilding your credit in the long run. But to do that, you need to know where to focus.
Your FICO score, which is the credit scoring model most often used by lenders, comprises the following:
- 35 % — Payment history
- 30 % — Amounts owed
- 15 % — Credit history
- 10 % — New credit
- 10 % — Credit mix
With those categories in mind, a few healthy financial habits will go a long way.
Pay accounts on time
One of the most effective habits for securing excellent credit scores is timely making on-time payments. Even a solitary missed payment can linger on your report for up to seven years. Establishing automatic payments for all your accounts can help prevent oversight and make sure you consistently meet payment deadlines.
Keep your credit utilization rate low
Your credit utilization represents the portion of your total available credit card limits you use. A general guideline is to reduce revolving debt and aim for a credit utilization below 30%. This demonstrates responsible debt management to potential lenders.
So, for example, if you have credit limits totaling $10,000, you would want to keep the total of all your monthly statements under $3,000. The lower you keep your credit use, the better it will reflect on your credit score.
Don’t close paid-off credit accounts
One good decision is to avoid closing any credit accounts you pay off. For one, closing an account lowers your available credit, which could raise your credit utilization ratio if you have outstanding balances on other accounts. Also, an account closure could reduce the overall average age of your credit history. Generally, the older your average credit age, the better you look to lenders.
Of course, there are a couple of caveats. If an account has an annual fee and you no longer use it, it may be smart to close the account. Likewise, if leaving the account open tempts you to charge more than you can afford, closing it may be in your best interest.
Don’t take out unnecessary credit
Each credit application triggers a hard credit check, potentially lowering your score by up to five points and reducing your average account age. To continue improving your credit score, only apply for credit when truly necessary.
4. Take strategic steps to establish new credit
It’s no easy task to build credit fast. Especially if you’re starting with a poor credit score, you may have limited options for establishing new credit and charting a new course. That doesn’t mean there’s nothing you can do, however.
Open a new secured credit card
A secured credit card is backed by a cash deposit. You’ll pay the deposit upfront, and the amount you pay usually becomes your credit limit. You can use your secured card just like any other credit card, and you can build your credit by consistently making on-time payments. Individuals with poor credit or a thin credit file may qualify more easily for secured credit cards.
Become an authorized user on someone else’s credit card
If the primary account holder’s credit card issuer reports authorized user activity to the credit bureaus, their positive credit history and responsible credit usage could contribute to raising your credit score.
At the same time, any negative activity on your part could damage the other person’s credit, so discuss how you’ll establish good habits or set spending limits.
Open an account with a cosigner
This solution works in much the same way as being an authorized user. If you ask someone to cosign with you when applying for a new loan or credit card, the lender will consider that person jointly responsible for the debt. Their good credit may make it easier for you to qualify.
Apply for a credit-builder loan
If you have no credit history or a low credit score, a credit-builder loan can help you build a track record of responsible financial conduct without relying on a credit card. These aren’t a great option if you need cash quickly, however.
5. Seek out credit counseling to discuss your options
If improving your credit score feels daunting, consider seeking assistance from a reputable credit counseling agency. Many of these organizations operate as nonprofit entities. They may offer complimentary consultations, providing advice suited to your financial circ*mstances.
The National Foundation for Credit Counseling (NFCC), a nonprofit network of financial counselors, is an excellent resource for affordable credit guidance. You can also refer to the Department of Justice to find approved credit counseling agencies near you.
In addition to helping you create a budget and manage your finances, credit counselors can work with you to structure a debt management plan (DMP). Under a DMP, you make regular payments to a credit counseling agency, which pays your creditors on your behalf. The agency may negotiate with creditors to secure lower interest rates, waive fees or extend repayment terms, making it easier for you to meet your financial obligations.
The bottom line
Taking charge of your credit is not just about numbers — it’s about taking control of your financial future. Whether you’re aiming to secure a loan, rent an apartment or simply improve your overall financial well-being, adopting a few proactive strategies is the key to success. You might experience a few bumps on the journey to credit repair, but with determination and the right tools, you can overcome them and get into a better financial position.
Frequently asked questions
Some of the quickest ways to fix your credit score include:
- Applying for higher credit limits successfully.
- Consolidating your debt.
- Disputing inaccurate entries on your credit record.
- Ensuring you pay your bills on time.
- Paying down outstanding balances.
Legitimate credit repair companies can help you fix credit errors, but they don’t offer anything you can’t do yourself. Keep in mind that these companies can not remove accurate negative information from your report, only mistakes.
If you’re feeling overwhelmed or short on time, hiring a reputable credit repair service might be an option. Be wary of warning signs, such as upfront payment requests or failure to disclose your rights when outlining their services.
You can improve your credit independently without relying on a credit repair company. Take steps such as reporting inaccuracies on your credit reports, paying down debt and obtaining a credit card that reports punctual payment history to the credit bureaus.
The time it takes to improve your credit rating depends on the severity of your credit issues. If you have only made a few recent credit mistakes, you might be able to rectify your credit within a few months. However, if you’ve consistently missed payments or maxed out cards for an extended period, significant improvements may take years.
