Fixing your credit yourself may be possible — and often the best solution. There are many credit building and credit repair techniques you can use to try to help your scores rise.
While some people think it may be useful to hire a credit repair company to fix their bad credit, there’s no reason to spend money on what you may be able to repair yourself with some targeted credit repair strategies. Here are 11 steps that may help repair your credit and raise your credit score.
The first step to fixing poor credit can be examining your credit reports. Without knowing what is affecting your credit score, you may not be able to begin to fix the problems. Anyone can get a free credit report from each of the three major reporting companies every year.
To do so, head to annualcreditreport.com and enter your information. This is the only website authorized to generate free credit reports. You can also reach out directly to each major credit reporting company: Experian, TransUnion and Equifax.
Once you have your reports, you should review each one carefully. You should look out for any errors or incorrect information. This can include:
Faulty items will need to be disputed with the three credit reporting agencies. Reach out to the original credit issuer (or the current account owner) for legitimate negative items to start a repair plan.
Once you’ve studied your reports, it is suggested that you highlight the legitimate negative marks. These items will likely be where your repair process will focus. These may include:
You can’t dispute legitimate negative marks. However, you might be able to work with creditors and debt collectors to create payment plans or negotiate for a lower amount due.
A pay for delete letter negotiates the removal of a negative mark from your record if you pay your debts. While this may be the best option for some, it’s not typically recommended overall. Pay for delete options hold minimal weight in courts and the success rate is usually low. Only inaccurate or incomplete information can be removed from your credit report, so credit repair companies that promise they can give you better results could be a scam.
When writing a pay for delete letter, you should include:
This isn’t a surefire way to remove a negative mark, but the collection agency may be willing to negotiate if you offer them more than they paid for your debt.
Sometimes, errors can arise in a credit report. These include incorrect names, account numbers, or entire credit accounts in cases of identity theft. While not common, it does happen and can negatively impact your credit score.
Once you have verified the inaccurate marks, you can begin to dispute them. To do this, it’s suggested you:
You can also dispute incorrect information on the credit bureau's website. Be sure to have your information and digital copies of your documentation accessible when you do so.
If you believe errors on your credit report are the result of identity theft, go to IdentityTheft.gov. Since identity theft is a federal crime, this government site provides all the needed steps and information regarding reporting and fixing identity theft issues.
When disputing items on your credit report, it may be a good idea to request a formal investigation and action via a dispute letter. This letter should include:
To ensure a paper trail, it is recommended to send the letter via certified mail. We also recommend keeping all original items yourself and only sending in copies.
Because of the Fair Credit Reporting Act (FCRA), credit bureaus must complete an investigation within 30 days of receiving your request. Investigations are sometimes finished quicker than this, but it may depend on how fast the original lenders or other companies provide the major credit bureaus with the necessary information.
If you have to submit any extra information, the FCRA allows 15 days of additional investigation time. Watch the mail for response letters within this time frame. If you disagree with the outcome, you can file another dispute with more information for further proof. You can also go to the original creditor and ask for a correction directly.
Finally, you can ask for a statement of dispute to be added to your report. This doesn’t change your credit score, but it will be visible to future creditors, indicating that you disagree with an item.
While verifying your credit reports, it is essential to continue making your regular payments. Credit scores are generated from your credit reports by two main scoring companies: FICO©* and VantageScore, with FICO being the most widely used by creditors. Payment history is the most important and heavily weighted credit score factor in FICO’s score calculation formula. As such, missing payments can lead to a bad credit score.
Creditors will typically report an account 30 days after you miss a payment. Some creditors wait 60 days to report late payments. Even if you miss the due date, it is recommended you pay the total amount due as soon as possible to reduce the late payment’s negative impact.
Another way to help keep your credit score as high as possible may be to keep your credit accounts open. The age of your accounts makes up 15% of your FICO credit score, so closing old accounts will reduce the average age.
Closing accounts can also affect your total credit utilization rate. Your credit utilization makes up 30% of your FICO Score. By closing an account, you reduce your total available credit amount, which increases your utilization rate.
Any time you apply for a line of credit, it may count as a hard inquiry. This means that a creditor has looked at your credit report to determine your creditworthiness. These inquiries will have a short-term negative impact on your credit score, and too many inquiries in a short time can be a red flag to potential creditors.
Hard inquiries may be necessary when opening a credit account, so they are, at times, a part of the process. However, you can be strategic with your inquiries, especially if you’re shopping around.
If you shop around for mortgage rates, for example, your credit won’t be impacted if your first hard inquiry occurs within 14-45 days of your last credit check. You can safely compare rates with as many lenders as you’d like within that period. You’ll only get one hard inquiry reported on your credit score if you do.
Hard inquiries are made whenever you apply for a credit account. These include loans, credit cards and credit line increases, and even new utility applications. These inquiries will slightly lower your credit score as new accounts are considered riskier than existing ones.
Soft inquiries do not affect your credit score. Items such as pre-approved credit offers, personal credit checks and employment applications will generate a soft inquiry. These check your credit report, but they have no impact on your score.
Credit utilization is a large part of your credit score. To decrease your credit utilization, you can increase your total credit limit while maintaining the same level of spending. One way to do this is to request a credit line increase. Creditors may generally grant an increase if you’ve used your credit responsibly.
If your credit score isn’t in the best shape, you may not be approved for a limit increase.
Another way to boost your credit score is to consider having an ideal mix of credit accounts. Different scoring models place different weights on your credit mix. Still, creditors look at your credit mix to determine your ability to manage various types of credit.
A credit mix can include these four types of credit accounts:
The quicker you can pay off debt, the faster your score may rise. Though it may not result in an immediate credit score raise, reducing your overall debt may save you money in interest charges and help position you for better loan terms in the future.
One strategy to consider is to focus on your revolving credit accounts first, as paying down installment credit accounts may not raise your credit score as quickly. Start with accounts with the highest interest rates if you have many revolving accounts.
You can also look into debt consolidation loans to raise your credit. Debt consolidation loans provide funds to pay off your outstanding debts. By using the money from a debt consolidation loan to pay off outstanding debts, you can simplify your life by focusing on one payment over many.
Many consolidation loans feature extended periods of no or low interest to help keep costs down.
With that said, installment accounts still do carry credit weight. By ensuring you make each payment, you may continue to improve your credit. Some loans, such as Self’s credit builder loans, are designed to raise your credit through 12-24 months of loan payment reporting.
Paying the loan may reflect positively on your credit score by improving your payment history, a major factor of credit score calculation. At the end of the loan’s life, you’ll receive the money back that you have paid (minus any interest, fees or associated costs).
Repairing your credit is seldom a quick process. It may require patience, discipline, and a genuine commitment to improving your finances. With this in mind, you should thoughtfully consider any service advertising quick credit repair. These can be credit repair scams and can lead to disastrous financial results.
To try to identify a credit repair scam, look for the following:
If it seems too good to be true, it usually is. Avoid any services that try to avoid explaining their practices.
In short, there generally isn’t a good reason to hire a credit repair company. Even legitimate companies can only do what you can already do for free. Credit counseling services do exist, but these are designed to help guide you through repairing credit while teaching better financial lessons.
To try to achieve a good credit score, take some time and work through this do-it-yourself credit repair process. If you need extra help, please visit Self’s blog for more information.
Disclaimer: FICO is a registered trademark of the Fair Isaac Corporation in the United States and other countries.
Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.
Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).