How To Clean Up Your Credit in 5 Steps

Summary and Key Takeaways

• Can you clean up credit report? Yes, you can request a free copy of your credit report from the main credit bureaus, verify all accurate information, and dispute any type of credit report error.
• Inaccuracies in your credit report may lower your score.
• To improve your credit and credit score, ensure you pay your bills on time and pay down debt.
• While there are legitimate credit repair companies, be wary of a credit repair service that makes too-good-to-be-true promises. They may be trying to pull a credit repair scam.
• A high credit utilization ratio can help you maintain a good credit score.

Having good credit can help you in buying a house, renting an apartment, taking out a personal loan, applying for a mortgage, leasing a car, or obtaining a credit card. The better your credit score is, the better chance you’ll have of obtaining a loan or line of credit, or lowering your interest rates.

Even a single error on your credit report can negatively impact your credit score. On the other hand, cleaning it up could lift your credit score in the long run. You can follow these steps as you set out to rebuild your credit.

1 - Check your credit reports

First off, it’s a good idea to check your credit by requesting a free annual credit report from each of the three major credit bureaus: Experian, Equifax and TransUnion. Credit bureaus gather credit information on your borrowing, debt and payment history. They use this information as a basis for creating credit reports. The good news is, you have access to all this information: Under the Fair Credit Reporting Act, you can obtain a free copy of your credit report once a year at annualcreditreport.com. You’ll need to provide your name, address, Social Security number and date of birth. If you’ve moved in the past two years, you also may be asked to provide your previous address.

Credit reports are different from credit scores. FICO score (FICO® is short for Fair Isaac Corporation) or VantageScore(R) use different pieces of credit data in your credit report to calculate your credit score. Both credit scoring companies use a credit score range from 300 to 850.^[1]

Some of the information used to calculate a credit score includes your payment history, credit utilization and the amounts you owe, how long you’ve been using credit, the mix of credit types — student loans, credit cards, car loans, etc. — and the amount of new credit you have obtained.

It’s a good idea to get a free credit report before you apply for a major loan, purchase insurance, or apply for a job (since many employers will take note of your credit history). That way, you’ll know you still have time to address any errors or negative items and dispute them if necessary. You may also want to obtain your current credit score. You can pay a small fee at the time you obtain your free credit report or you can go to FICO website and sign up for a free service or explore options on the VantageScore website for free scores as well. You may also want to learn more about how often your credit score updates so you can determine how far in advance to start working on improving your credit history and score.

Spotting inaccuracies is also important because you may be a victim of identity theft which can damage your credit, as well. Thieves use scams to obtain personal information, which they can use to open a line of credit in your name, make charges and never pay the bill.

It’s always possible that another person’s information has been included in your account by accident, especially if you have similar names. It’s a good idea to check your name, phone number, address, account status, current balance and credit limit to make sure they’re all accurate.

Even minor inaccuracies can lower your credit score, so it’s helpful to check for any mistakes in your credit report. Also be on the lookout for other factors that can affect your credit score, like inaccurate credit card balances and any late payments reported in error.

2 - Dispute any errors

Having an error on your credit report is more common than many might think. According to a 2012 study by the Federal Trade Commission (FTC), about one-quarter (around 25%) of Americans have an error on their credit report.^[2] A follow-up study three years later found that nearly 70% continued to believe that at least some inaccurate information remained on their reports.^[3]

In the follow-up study half of those who had already found inaccuracies and disputed it still found the dispute on their credit report 3 years later and were so dissatisfied with the process said they planned to abandon their dispute. That’s just another good reason to start the credit report dispute process as soon as possible, as disputing often takes time and perseverance. It is important that you stick with it because the damage done to your credit won’t be erased if you don’t take action. The credit repair process will only get harder the longer you wait.

If your dispute is rejected and you think there’s still something wrong, backtrack to see if you’ve done anything that could have triggered the negative information. If you find you have, contact your creditor and set up a plan to catch up on your payments, while asking the creditor to stop reporting missed payments.

The Federal Trade Commission (FTC) provides excellent guidance on Disputing Errors in Your Credit Report. You need to file a dispute in writing with each bureau that has the error and include supporting documentation. Be sure to keep records of everything you send. The credit bureau has 30 days to investigate and get back to you with a response. You also should contact the original creditor of the debt, if it is related to a particular line of credit or installment loan and try to resolve it directly with them.

If you’re still having difficulty, another option is to contact a nonprofit credit counseling service to see if they can help you. Be careful of enlisting the help of credit repair companies that might charge a fee upfront and offer services that you can do yourself. The FTC offers advice on what to look for in a credit repair scam.

As with any legal or financial process, it’s important to keep track of all forms of communications you have with credit reporting bureaus, original creditors and/or collection agencies.

As part of this process, you should collect all documents that support your claim; bank statements, credit card statements, or emails.

Keep track of all of your communications to make sure that the dispute is filed appropriately.

As the FTC survey above makes clear, disputes aren’t always resolved right away. That’s one reason it’s important to keep in touch with your creditor and the credit bureaus and have dates and names handy for discussing the next steps in the process.

Following up with credit bureaus and creditors is also necessary because it helps you make sure you’ve left no stone unturned in your quest to clean up your credit. If your dispute claim is denied by a bureau or lender, you can request that a statement of the dispute be placed in your file and future reports. You also have the option to take action with the FTC.

3 - Pay bills on time and pay off debts

Working to rebuild your credit little by little is the last important step you can take in the cleanup process to take control of your personal finances.You can start improving your credit once you’ve cleared up any mistakes or issues that appeared on your credit reports. Here are opportunities that may improve the credit you do have on your credit report:

Avoid late payments and make sure none of your payments are past due. If they are, it’s important to pay them off promptly, then monitor your credit card balances and personal loans so that you never miss a payment again. A payment more than 30 days past due is considered a delinquency and is reported late on your credit report.

Do not apply for too many loans in a short space of time. Applying for a hard inquiry or “hard pull” to check your credit.

If you have a record of too many credit inquiries, it can reduce your chances of obtaining a loan and may negatively impact your credit score. (Keep in mind, credit scoring models now factor in if you are shopping for a loan like a mortgage or auto in a very short period of time and will only count those inquiries as one hard inquiry.)

Another positive step to take is to maintain a low balance on your revolving credit accounts like credit cards, so you have ample available credit. Maintaining a high balance near your credit limit can be a red flag that you are overextending yourself with debt. Keeping your credit utilization rate low also helps. Financial experts recommend keeping your credit utilization below 30% at all times and ideally under 10%.

Bad credit isn’t forever, and credit rebuilding doesn’t have to be a mystery. It does, however, take patience and diligence to ensure that you’re on the right track and that your credit bureaus do not contain any errors.

By monitoring your credit report and credit score, paying your bills on time, minimizing your request for new credit and keeping your credit card utilization low, you can work to improve your credit which may translate into a better credit score in the future.

Article Sources

1. Self Financial. "How are credit scores calculated?" https://www.self.inc/learn/how-credit-score-calculated. Accessed April 15, 2021.
2. Federal Trade Commission. “In FTC Study, Five Percent of Consumers Had Errors on Their Credit Reports,” https://www.ftc.gov/news-events/press-releases/2013/02/ftc-study-five-percent-consumers-had-errors-their-credit-reports. Accessed April 15, 2021.
3. Federal Trade Commission, “FTC Issues Follow-Up Study on Credit Report Accuracy,” https://www.ftc.gov/news-events/press-releases/2015/01/ftc-issues-follow-study-credit-report-accuracy. Accessed April 15, 2021.

About the Author

Lauren Bringle is an Accredited Financial Counselor® with Self Financial – a financial technology company with a mission to increase economic inclusion by helping people build credit and savings. Connect with her on Linkedin or Twitter.