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Do It Yourself Credit Repair: 6 Steps To Recover From Bad Credit

Don’t fall for scams promising easy, overnight credit repair. If you want to fix your poor credit, you can (and should) do it yourself. Follow these six simple steps to do-it-yourself credit repair.

If you’ve had an overdue student loan, years of high credit card balances or even a foreclosure, you probably have a low credit score, which can cost you a bundle if you ever want new credit.

With poor credit, you may simply not be able to get many credit products like credit cards. But if you have a decent income, you can often still get an auto loan or a mortgage (yes, even today), but there’s a catch: lenders charge a higher interest rate to homebuyers who have poor credit.

What does that mean, exactly? Well, versus a borrower with good credit, someone with poor credit can pay $50,000 more in interest on a mortgage or over $200,000 more over a lifetime of borrowing.

The good news is—as you should know if you’ve read this blog for a while—is that you can repair your credit score legitimately, and you can do it yourself. Don’t fall for ads from lawyers or authors promsing easy credit repair; they’ll just charge you a bundle to take some simple steps you can handle yourself.

1. Know where you stand

Before you begin do-it-yourself credit repair, you’ll want to get copies of your full credit reports from all three bureaus (Experian, TransUnion, and Equifax). You can get your reports truly free, once a year, at www.annualcreditreport.com or by calling 1-877-322-8228. Other websites may claim to offer free reports, but the Federal Trade Commission (FTC) warns that these offers are often deceptive.

Note, however, these reports will not contain your credit score, which you may want to see before applying for a mortgage as your score coorellates with the interest rate you’ll pay. This free credit score service is truly free, whereas other provide your credit scores either as a “free trial” or for a modest fee. Credit scores range from 300 to 850; a score of 740 or above is enough to qualify you for the lowest mortgage rates. If you discover that your score is below 740, there are important steps you can take.

2. Dispute errors

The first step in repairing your credit score is to dispute incorrect information on your credit report. Unfortunately, errors are common. Once you have the copy of your full credit report in hand, check your identity information (Social Security number, spelling of your name and address), and credit history.

Review the list of credit cards, outstanding debts, and major purchases. If you see any mistakes or questionable items, make a copy of the report and highlight the error. Next, gather any information that you have to back you up, such as bank account statements, and make copies of these as well.

Write a letter to the specific credit reporting agency that shows the falsehood, whether it is Experian, Equifax, or TransUnion. Explain the mistake and include a copy of the highlighted report along with your documentation. It’s a good idea to send this letter by certified mail, and keep a copy for yourself. The reporting agency has 30 days from the receipt of your letter to respond. The Federal Trade Commission provides advice on contacting the credit bureaus about discrepancies. Here are the contact numbers and web sites for the three credit bureaus:

3. Stop the bleeding

Once you deal with any errors on your credit report, there are only three simple things to do to repair your credit:

  1. Pay all of your bills on time
  2. Pay down debt (especially credit card debt)
  3. Avoid applying for credit

But before you can do these things, you need to make sure you’re not spending more than you earn. Yes, you need a budget. To start, review your tax returns for the past two years to get a sense for how munch money you actually take home in a year.

Subtract your regular monthly expenses (rent or mortgage, car payments, and home, car and health insurance) from your current income. Next, estimate your monthly spending habits for other expenses such as gas, groceries and entertainment. Create a limit, based on your income, of what you can spend in each of the different categories of expenses. For example, if you tend to spend $400 a month on groceries, try to stick to $300 a month on groceries by making changes like buying generic brands, using coupons and resisting impulse purchases.

If you’re behind on one or more monthly bills or you need help living within your means, you can turn to a credit counseling or debt management agency (learn more about if debt management is right for you), or you may be able to find free counseling at your local library or another non-profit organization.

4. Pay all bills on time going forward

Pay all of your monthly bills on time, period!

If you are behind on any, get caught up as soon as you can. On-time payments are the single most important factor to your credit score, and your credit won’t improve until you can consistently pay every bill on time.

5. Pay down credit card balances

Finally, take charge of your credit cards. If you have any outstanding balances, make room in your budget to pay down these debts bit by bit, every month until they are G-O-N-E.

Know your credit limits and make every effort to stay well under the maximum when charging items. Debt is analyzed by ratios. If you charge $500 on a card which has a $1,500 limit, you’ve used 33%, which is better for your credit score than charging the same amount on a card which has a $1,000 limit (50%), both of which are better than being maxed out (100%). Pay these credit cards down, but don’t cancel them. The total amount of available credit affects your score, even if you owe nothing.

6. Don’t apply for new credit

Finally, resist the temptation to open a new credit card, even when a store offers a discount on your purchase for doing so. Each time you apply for credit is listed on your credit report as a “hard inquiry” and if you have too many within two years, your credit score will suffer.

Once you’ve fixed errors on your credit report, begun budgeting and paying off debts, be patient. It will take months or even a couple of years for your credit score to improve, but if you plan on buying a new home, it’s well worth it.

Published or updated on June 3, 2010

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About Sarah Davis

Sarah Davis is a real estate broker in San Diego, Calif. She enjoys helping both buyers and sellers and was voted one of the top 10 best real estate agents in San Diego in 2013 by Union Tribune readers. In her spare time she talks about real estate on a local radio show and manages her website RealtorSD.com.


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. ROSA says:


  2. Linette Perry says:

    What can I do about credit cards that are currently in “collection” status and were CLOSED /CHARGED OFF by the creditor? Would resolving or settling these debts help my credit score? Should I work with the collection agency or contact the credit card company directly? What is BEST thing to do?

  3. Scott says:

    Wow Thanks for the very great tips. Now I have raised my credit by 582 points.

  4. Billy Ress says:

    I know, I really can’t afford an extra $15 a month :(
    Has anyone heard of a company called the alternative loan machine?
    A friend told me that they help protect people from scammers.

    Any thoughts on this company?

    • Rhiana says:

      I was actually scammed by The Alternative Loan Machine $4,200. I know them. They are local to me. I paid them for work on my credit that they assured me would be done. It wasn’t done. They promised a refund. It’s been 3 months and the refund never came. Now, no one answers their phone, returns calls, or is on line at their chat “Help Desk” anymore. All the assurances of preventing scams and ensuring work, ended up all being B.S.

      • Rhiana says:

        UPDATE: The Alternative Loan Machine is actually fixing the issue for me now. Apparently the problem was during the period when they were switching from beta testing to going live. Their communications were down while they were transferring everything over to their new system. They’ve since contacted me and are assisting in getting my refund back from the vendor I hired through them, so everything’s getting taken care now. They are at this time doing everything they advertise themselves doing.

  5. Sarah Davis says:

    Yes, monitoring your credit score continually is great. But realistically, not everyone can pay an extra $15 to hire a company to do it. Checking your bank accounts every day and opting in for free fraud protection services from your banks and credit cards is also effective.

  6. We agree that it is very important for individuals to be knowledgeable of their credit standing. When you have a credit-monitoring tool like freecreditscore.com on your side, you get e-mail alerts whenever there’s a change in your credit score–and you can also see your credit score whenever you want. With the free credit report from the government, you only see your report once a year. If you monitor your credit score regularly, it’s easier to catch inaccuracies before it’s too late.

  7. JanM says:

    I don’t carry any balance on credit cards and have never been worried about my score. But, I never thought to check my reports for accuracy. I’m going to order a copy and check them as you suggest. Thanks.

  8. Jake says:

    Thanks for all of the help! This blog really inspires me and makes me want to go out and do something!

  9. Penny Stanton says:

    If you have impossibly high interest on those credit cards, then do cancel them. It doesn’t help to have open credit cards if the interest rate makes it nearly impossible for you to get the balance down. In fact, banks currently have hardship programs, where they will reduce your interest rate TO ZERO if you agree that they will cancel your cards. Yes, you wll take an immediate hit on your credit score, but that will quickly improve as you pay down your credit cards, which you can now do because you don’t have those usurious interest rates to pay.

  10. Enrique says:

    I just want to say that I followed all of the steps listed above and they have proved to be excellent. I received all 3 credit reports and my actual credit score and it has been extremely helpful in knowing where I stand and in which direction I need to head, so thank you very much!!! :)

  11. Following these 6 steps people with bad credit are sure to succeed. I would like to add while paying down your credit card debts one option that may help you get ahead is to take advantage of credit card transfers. Normally banks will let you transfer your balance (they’re more than happy to take it) for a small fee. One word of caution however, is that this doesn’t really fix the underlying issue, which as Sarah mentioned budgeting and keeping on top of your payments will.

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