How to Repair Your Credit

Keeping your credit clean is essential to your everyday life. Without credit, you can’t buy a home, purchase a new car, or get loans to send your children to college.  While credit might not seem like a big deal, it is a big deal. Without it, your whole lifestyle will be hampered. 

One of the biggest questions I hear is "How can I repair my credit quickly?"

If you have bad credit it can be repaired, but it may be a lengthy process. The first step will be to order your credit report from the three major credit bureaus.  A tri-merge report will work just as well.  This report will combine all three credit files into one file.  Any incorrect information that is found on the reports should be disputed immediately.  Getting incorrect information removed will improve your credit rating substantially.

The next thing you will need to do is to determine which items are reflecting negatively on your credit report along with the balances that are owed on each of them.  If you can afford to pay them off, send payments to the companies right away.  If the amounts are too high for you to afford a lump sum payment, then contact the companies individually by phone.  Many companies will take a lesser amount than is owed as a settlement in full payment, or they may allow you to make payments on the total balance, especially if the debt is more than two years old. 

Another thing you can do to repair your credit is to pay all of your scheduled payments on time that you owe.  A credit score is usually based on the last two years' worth of payments.  If you begin making your payments on time then your score will start to improve within a matter of a few months.  The payments need to be made on time religiously in order for the score to improve.

When you are trying to improve your credit score, try to limit the amount of times you apply for new credit.  Every time a company pulls your credit history your score is lowered.  If you apply at multiple companies due to being turned down for credit by several of them, this could seriously damage your credit score and defeat your purpose in trying to improve it.  Only apply for what is absolutely necessary until the repair process is complete.

You should also be careful about what types of credit that you are applying for.  While no one really knows for certain how exactly the credit score is formulated, many experts believe that applying for high risk credit could hurt your credit rating.  Mortgages and Automobile loans are good for your credit if they are with a reputable banking institution rather than with a high risk company.

As you begin to pay balances down or off, your debt to income ratio will improve, which will positively impact your credit rating.  The less you owe then the better off you are where your credit score is concerned. If your income is much greater than the amount you have to payout each month, then your score will continually increase as long as things are paid on time. 

Reestablishing and repairing your credit is a long process and can seem painstaking at times.  Be patient and follow the steps to repair your credit, and you should be pleasantly surprised at the results within a few short months.

Tips to Repair your Credit

There's plenty of things you can do to repair your credit, so let's take a look at some ideas.

Before we get started, you should have gotten your Credit Report by now. If you have not gotten your free report this year, be sure to check out this article on getting your free annual credit report. It's also a good idea to understand how credit reports work, if you don't already know.

Repairing Your Credit

1. Dispute accounts on your credit report that you do not recognize. Most people have accounts on their credit reports and many have reasons to dispute them. You can do this online or via mail. If you decide to do this by mail, be sure you use certified mail so that you have proof of the date that they received the mail. This is useful as the Credit Bureau's have 30 days to update your report. 

You can find plenty of dispute letters floating around the internet that you can use as a template. Be sure to send all the details that the Bureau will need for reference. This includes your name, address, birth date, social and the account numbers on your credit report that you want to dispute.

Be sure that you only dispute 2-3 at a time, otherwise you'll be less likely to see them removed.

If you feel that they left the marks on your report in error, you can escalate the matter and write the Attorney General in the state where that Bureau does business. You can also write to your own AG as well. If they continue to leave it on, you'll have to continue to escalate the matter. 

* Note: if you have proof that the account is not yours, be sure that you send this proof in your original letter.

2. Contact the account holders and try to work out a payment plan or a lower payment if paid in full. Most accounts in collections belong to collection agencies and they purchase these accounts from the original account holders, in hopes that they can make money off of them. Try to work out a payment structure that fits you. 

Most of these collections can be cut down if you pay in full. Ask them if they're willing to work out a deal for you if you can pay in full. This doesn't always work, but it's worth a try.

3. Start working to improve your credit score. There's a lot of ways to improve your credit, including secure credit cards. These easiest way for most people to get going in the right direction is to find a local Credit Union and go in to discuss plans they have for people with bad credit. This can include secure credit cards, secure loans and various other methods.

Most Credit Unions have plenty of ways to help you get moving in the right direction. I suggest that you get a few secure credit cards if you have the money. Just be sure to stay in the 20%-35% balance range so that you don't get caught up in owing too much money, leading you back down the wrong path. Keep things simple and focus on paying everything off quickly. Purchasing a small amount of items and paying the balance off monthly will be extremely helpful.

After your credit starts to get back on the right track, be sure to do your best to close off those secure cards/accounts and work on acquiring an unsecured credit card as well.

Your ultimate goal should be a 6-12 month turnaround on repairing your credit. It will take most people approximately 2-6 months (or longer depending on the amount and the types) to get negative accounts wiped off their reports, and it will take several more months to start seeing positive marks appear on your reports.

If you have a bankruptcy and/or a foreclosure, reposession or anything major on your credit, you should expect to spend a lot more time repairing your credit. This is where I would highly suggest that you join your local Credit Union and discuss your options. It will take a lot of hard work, but most of all a lot of time.

As always, I do hope that this article has helped you better understand how to repair your credit and allows you to get back on track!

UPDATE: I've also written another article on different ways to repair your credit.

If you have any concerns or questions, please ask below!


over 10 years ago

It might be hard repairing your credit by yourself. There are some good companies like Lexington Law who have been doing a good job of it for years. I haven't used them, but so far I have heard really good things. Besides, they are an actual law firm with actual lawyers working for you, and they have a really good reputation. I know there are a lot of scams out there, so this is probably your best move. It will save you thousands in the end.

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