How to Fix Bad Credit and Improve Your Credit Score

If your credit score is below 620, you know how tough it is to get a loan or a credit card with reasonable terms — that is…if you can even get them in the first place. It’s a well known fact that lenders will give people with good credit scores lower interest rates on mortgages, car loans and credit cards. Even if you swear you’ll never get a loan or use a credit card, a bad credit score could affect your life in many ways — for example, your ability to rent an apartment, get a good insurance policy with low premium, get certain jobs, and more.

credit score

There are millions of people in the United States that have bad credit scores, and if you’re one of them, you’re probably wondering what you can do to raise yours. Improving your credit rating is not as hard as you think. You can start your journey toward a better credit score by following these steps:

Review Your Credit Report and Fix Problems

First, request a copy of your credit reports from the three bureaus via AnnualCreditReport.com — this is absolutely free once per year per bureau.

If you find any error, write to the bureau and ask them to fix the problem. You might also want to contact the lender who reported the error. Some lenders will help you correct the problem on your behalf.

Pay Down Your Debt

If you owe a lot of money, it could negatively affect your credit score — not to mention the negative impact on your finances because of all the finance charges you’re paying.

To pay down your debt, first prioritize them base on the interest rate — also consider whether or not it is tax deductible. Your  goal is to pay them off as quickly as possible, starting with the highest interest rate debt that is not tax deductible and work your way down from there.

Take a look at the Debt Snowball method for more information.

Do Not Close Your Accounts

One of the common myths is that you should close your credit card accounts once you pay them off. Unfortunately, one credit scoring factor is the length of your credit history. If you close your credit card accounts, especially ones that you have for a long time, you could hurt your credit score. A better solution is to put these credit cards away and keep the accounts open — assuming you’re not paying any fee to keep them around.

Do Not Apply for a Credit Card or a Loan

If you know your credit score is so bad that it’s unlikely your loan or credit card application will be approved, then don’t do it! When you apply for a credit card or a loan, the credit card issuer or lender will do a hard credit pull. Too many pulls and denials will hurt your score.

Just hold off on credit card and loan applications until your score gets better.

Build Good Financial Habits

As you work on your debt, make sure you pay all your obligations on time. This includes your rent and other bills. Although many service providers do not report the late payment to credit bureaus, paying on time is a good habit to get into.

Moreover, work on other good habits such as improving your career, building an emergency fund, starting and maintaining a budget, and so on. All of these things will help you improve your overall financial health.

Be Patient

Some problems are easier to fix than others. If your bad credit problem is severe — e.g., you declared bankruptcy or had a tax lien — it will take a long time for your credit rating to recover…sometimes, a decade or longer. The best you can do is practice sound financial habits and let the bad mark runs its course. In the mean time, just do your best to improve your finances and things will eventually come together.

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About the Author

By , on Jul 11, 2013
Andy Tenton
Andy is a 30-something New Yorker who turned his financial life around. He took charge of his finances, got out of debt, and is now working his way toward financial success. He is the publisher of WorkSaveLive.com.

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{8 Comments}

  1. Tom McGhee says:

    These are all good tips. Monitoring and fixing inaccuracies in your credit report are overlooked by many people. You might be surprised by what you find. With the right knowledge and a little time and effort you can repair your own credit without relying on credit repair companies.

  2. Paying down debt and keeping it low is very important just as different types of credit. Have credit cards is good but you should also have installment loans as well. Patience is very much the key. People make little changes and expect the score to job 50-100 points.

  3. Another note per your reference to paying down debt. If you’ve had a credit account open for a while, and might be carrying a balance, see if you can increase your credit limit by calling the bank. The credit bureau’s like to see a wide margin between your balance and your credit limit, which ultimately can help improve your score as you continue to pay off these debts.

    -Charles

  4. Maintaining a good credit score is very important as you never when you need to borrow money. Along with the flexibility there also comes debt risk with credit cards if it is not paid on time. Try to pay it off monthly. I usually try to minimize the usage

  5. Nice tips, didn’t see anything about getting a secured credit card… that’s what I recommend to many with poor credit to build it back up.

    Fundamentally though, your advice here is SPOT ON.

  6. It’s important to build good financial habits. What tends to happen to many people is that once they are in debt, the spending habit is so ingrained they start to accumulate more.

  7. Andy,

    One thing I’ve always wondered about is if it’s okay to close old credit card accounts if you have a long history of paying off your home mortgage.

    I would think that paying the home mortgage would be even more valuable for your credit score.

    What do you think?

  8. Mary Slagel says:

    I actually had a conversation about this yesterday with my roommate. She recently received her mother’s life insurance policy and is blowing it rather quickly. She went out and bought a car yesterday, plans to buy a new mac book this week, and has already bought new clothes and new make-up. She also wants to pay off her student loans which are at about 12,000 right now. But she asked me if her credit score would go up if she paid it off monthly or in one lump sum. I would assume paying it off in one payment would be the fastest way to get her credit score to increase considering the longer you have that large of an amount on your credit history, the slower your credit is to increase. Not entirely sure actually.

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