How to Repair Your Credit

Like your reputation, your credit takes years to build — but only moments to destroy. And once your credit score takes on damage, it can take months or years to repair. 

Fixing your credit takes time and hard work — but it’s worth the effort. A substantial credit history or sufficiently high credit score are preferred to buy or lease a car, to rent or buy a house or apartment, and to access a credit card with a high limit.

And the impact of a bad credit score can be far-reaching: It may subject you to higher interest rates when you borrow, narrow your housing options and even hamper your employment opportunities. Fortunately, there are a number of manageable steps you can take today to improve your credit score. 

Get a credit report

First, you need to understand exactly what you owe, who you owe it to and how it impacts your credit history.  While you are typically entitled to a free credit report from each of the three bureaus each year, you can currently get free credit reports from the three agencies on a weekly basis through December 2023 thanks to COVID-19 era policies.

Many credit cards also offer free access to your credit scores through your online account. If your credit report has inaccuracies — like an account you didn’t open or one that’s been paid off that still shows a balance — file a dispute with the credit agencies. Flagging errors doesn’t cost anything and can improve your score. 

Read CNET’s guide on how to read a credit report to understand what’s in it. 

Create a budget 

Once you know where you stand, it’s time to hatch a financial plan. The first step is making a budget. Look at your monthly income and expenses.

The best place is to check bank and credit card statements to see where the money is going.  Try to reduce as many expenses as you can, whether it’s dining out less or canceling Netflix. It’s also important to set some goals such as paying down the balance of a credit card within a certain number of months.

This process may take time and seem daunting, but it’s vital to understanding where your money is going.  See also: The best budgeting apps

Calculate your monthly debt expense 

Next, it’s time to see what you owe. Look at the statements from the various creditors and see what the minimum payment is for each account.

If any of your accounts have been transferred to a collection agency, reach out to them to figure out a payment plan. 

Prioritize your debts

The accounts with the highest interest rates should be your top priority. The faster you pay them down, the less you’ll pay in interest (credit cards — and especially retail store credit cards — typically have higher interest rates than loans). But there’s another important factor — your “credit utilization.” 

“Credit utilization rate is the ratio between what an individual owes on their credit card and how much of their total limit they’ve used,” Lin said.”Credit utilization rate can be quickly updated to improve (or hurt) credit health. Constantly maxing out your credit card and having this recorded on your monthly bill can negatively impact your score.” The ideal credit utilization ratio is 30%, which means your combined credit card balances should be no higher than 30% of the combined credit limits.

The closer you get to this percentage, the better your credit will be. 

Pay your bills promptly 

Paying your bills — on time and consistently — is a key step in rebuilding or maintaining a good credit score. Late and overdue payments can blemish your credit history for years. If paying bills on time is an issue for you, consider setting up automatic payments.

If that’s not an option, set a reminder on your phone or calendar.

Keep the credit cards you already have… 

In general, the longer you’ve had a credit card, the better. Once you’ve paid down the balance, you may be tempted to close your credit card account. Don’t do it — unless it has an annual fee.

Closing an account can change your credit utilization and negatively impact your credit history.

…but don’t get any new ones

Don’t open up more credit accounts while trying to pay down debt. As your credit score improves, you’ll likely receive more credit card offers. Ignore them — unless there’s a balance transfer option with 0% interest and an adequately long repayment period. 

The bottom line

While it may take some time and dedication to improve your credit, the discipline you practice along the way will help you develop good habits.

Maintaining good credit behavior will keep your credit in good shape so you can qualify for better financial options down the road.

FAQs

How long does it take to repair my credit?

It depends. Sometimes not long at all. But there are exceptions.

For example, being 30 days late on a mortgage payment can take anywhere from nine months to three years to repair your credit. But if you file for bankruptcy, it could take up to 10 years.

Can you pay to have your credit fixed?

While some credit repair fees may appear reasonable, they can quickly add up over time. Credit repair companies may charge hundreds or even thousands of dollars to try to remove items from your credit report.

Keep in mind that you can do anything a credit repair organization can do for you, for free.

What is the Credit Repair Organizations Act?

In 1996, the Federal Trade Commission drafted the Credit Repair Organizations Act (CROA) in response to the behavior of some unethical credit repair companies.

The law seeks to ensure that companies offering credit repair services are honest and transparent in the way they conduct business.

It seeks to protect consumers from misleading advertising, excessive charges and lack of full disclosure.