To fix your poor credit, there are a number of powerful steps you can take — including paying down credit card balances, always making on-time payments, and lengthening your credit history.

If you’ve had an overdue student loan, years of high credit card balances, collections accounts, or even a foreclosure, you’re likely experiencing below-average (or even bad) credit.

Poor credit is a barrier between you and many of the most important milestones of life. You’ll have a tough time being approved for a credit card, and auto loans and mortgages may be impossible without help — or, at the very least, will incur a much higher interest rate.

The good news is that you can repair your credit score all on your own. It just requires a little bit of know-how, a good bit of patience, and Churchillian diligence with your budget.

Here are 10 strategies for how to fix your credit — and how to build credit with bad credit.

1. Figure Out Where You Stand by Checking Your Credit Score and Report

Before you begin do-it-yourself credit repair, you’ll want to get copies of your full credit report from all three credit bureaus.

A credit score and credit report are different (but related) things.

Your credit score is the number many lenders use to discern how much of a credit risk you are to them. The higher the number, the less risky you are as a borrower — and therefore the more favorable of a loan you can receive. Someone with a good credit score can often borrow more money and receive a lower interest rate.

Credit Score

Your credit score is calculated based on five factors, each of which makes up a unique percentage of your score:

  1. Payment history accounts for 35%. If you always pay your loans on time (even if it’s just the minimum payment due), you will have a pristine payment history.
  2. Credit utilization accounts for 30%. If you’ve got lots of big balances on your credit cards, that will hurt your score.
  3. Length of credit history accounts for 15%. If you open and close new loans regularly (such as credit cards, personal loans, etc.), the average age of your loans will be short. That will hurt your credit score, albeit only slightly.
  4. Applying for new credit accounts for 10%. Every time you apply for a loan or new credit card, your credit receives a “hard credit inquiry.” Those will temporarily lower your credit score.
  5. Credit mix accounts for 10%. To have optimum credit, you should have a variety of different loans. Think credit card, auto loan, mortgage, etc.

Credit scores range from 300 to 850. If your credit score is above 700, you can pretty well do anything anyone else can do.

It’s not necessary to have an 850 credit score. Paradoxically, a credit score too high can sometimes work against you, as lenders know they are likely to make hardly any money from you.

Read more: How Credit Works: Understand the Credit History Reporting System

Credit Report

Your credit report is essentially the nitty gritty of your credit history. You can view things like when you opened and closed all your loans, any missed payments and other “delinquencies,” etc. It’s a good idea to peruse your credit report every once in a while to ensure your credit isn’t suffering from a clerical error that has placed a negative mark on your account by accident (we’ll talk about this in a minute).

You can get your credit score and credit reports for free once per year. Head to the Annual Credit Report website or call 877-322-8228.

You can also try reputable free credit score tracking apps like Credit Karma or Credit Sesame to get a sense of where you stand — though these sites use a different scoring system (VantageScore) than most lenders (FICO).

Read more: How to Get a Free Credit Report and Credit Score

2. If You Find Errors, Dispute Them

The next step in credit repair is to dispute incorrect information on your credit report.

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Errors aren’t common, but they happen. You shouldn’t try to argue accurate information, but if you do see errors — even small ones — it’s worth cleaning them up. Here’s how.

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. This is important! The credit bureaus won’t do anything without proof.

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.

Although certain bureaus now let you submit disputes online, it’s not a bad 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 also has advice on contacting the credit bureaus about discrepancies. Here are the contact numbers and websites for the three credit bureaus:

3. Stop the Bleeding by Making a Budget

Ensure you’re not spending more than you can afford each month.

As painful (or even scary) as it may be, you need to examine your finances to make sure you’re not spending more than you earn. You need a budget.

Note that this can be difficult (although possibly even more necessary) for anyone who doesn’t have a consistent income throughout the year. For example, if you’re a restaurant server, an Uber driver, or a freelance writer, your income may be dramatically different month-to-month, so you’ll need to be extra on top of your budgeting.

To start, review your tax returns for the past two years to get a sense of how much money you take home in a year. Then subtract your regular monthly expenses (rent or mortgage, car payments, insurance, etc.) 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.

Read more: 5 Steps to Create a Budget that Actually Works

4. Pay Your Bills on Time

Pay your monthly bills on time. All of them.

Missing a payment is a dagger in the heart of your credit. Remember, it accounts for 35% of your credit score. That’s weightier than any other factor.

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Failing to pay a single credit card bill on time can cause your credit score to freefall. The biggest stride you can take to building your credit is to pay your bills on time.

Even if you’re only making the minimum payment, your credit score will improve. To ensure this never happens to you, put as many bills as possible on autopay. Even if you’re in the habit of paying your bills in full each month, autopay is still a good failsafe in the event that you somehow forget.

Read more: Automatic Payments Explained: Everything You Need to Know About AutoPay

Some bills may not be eligible for autopay. You can make an obscene amount of reminders if you’re concerned you’ll forget about these. For example, you can set a phone reminder a week before the due date encouraging yourself to pay early — and another “last-chance” reminder on the due date. Utilize calendars and sticky notes on mirrors if you have to. It’s that important.

One way to improve your credit score is by signing up for Experian Boost™. This factors in bills other than just credit loans. It will look at things like phone bills, utilities, and Netflix payments and recalculate your payment history. If you’ve perhaps missed a few credit card payments but you always pay your Netflix bill on time, Experian Boost™ can help to improve your credit score.

Experian Boost Disclaimer - Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.

5. Pay Down Credit Card Balances and Other Debts

Take charge of your credit cards by paying down their balances.

Carrying a balance on a credit card month-to-month is never good. Ideally, you’re paying your credit card in full before each due date to prevent yourself from being charged high interest rates.

However, that’s not always possible. If you’ve got debt spread across multiple accounts, you need a plan to systematically destroy that debt. It’s not a bad idea to focus first on the debts incurring the highest interest. However, the most popular course of action is to first pay off whichever debts are the smallest.

When you’ve got five credit cards that are all sucking money from your bank account in the form of minimum payments and interest, it can feel like you’re making no progress at all. Throw any extra money you’ve got toward the smallest loan until it’s paid off. Then, you’ve got more of your money to focus on the next smallest loan.

This strategy can also help your mental state, as your decreasing debt can be viewed in a more tangible way.

Read more: How to Pay Off Credit Card Debt Fast

6. Watch Your Credit Utilization Ratio

Using more than 30% of your total credit is a bad idea.

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As previously covered, credit utilization accounts for 30% of your credit score. Credit utilization is the ratio of credit you’re using compared to all credit available to you. As an example, let’s say you own one credit card with a $10,000 credit line. If you’ve currently got a $5,000 balance, your credit utilization is 50%.

An ideal credit utilization ratio is 30% or less. On the opposite end, if a lender sees someone using, say, 90% of their available credit, it can be a huge red flag and make it seem like you’re in financial trouble.

If you make large purchases that boost your credit utilization above 30%, try to pay those off as quickly as possible to drop yourself below that threshold.

Read more: What’s Your Credit Utilization Ratio and How Does It Affect Your Credit Score?

7. Keep Old Credit Cards Open

Even if you don’t use a credit card, it can still be of value to your credit score.

Credit history is responsible for 15% of your credit score. This is based on the average length of all your active loans. The longer the average age of your loans, the better your credit score.

For example, if you opened your first credit card four years ago, the average length of your credit history is four years. If you open another credit card today, the average length of your credit history would become two years. And if you were to cancel your first card, the average length of your credit history would become one day. To be fair, accounts closed in good standing will remain on your credit report for several years, but you’ll eventually feel the impact to your score when the closed account drops off.

If you’ve got a credit card that no longer suits your lifestyle, don’t just close it. Keeping it open will help to preserve the average age of your loans.

Read more: When (if Ever) Should You Cancel a Credit Card?

Note that this is only a good idea if your credit card doesn’t come with an annual fee. It’s not worth paying year after year for a card you don’t use. However, many cards have no-annual-fee versions that you can downgrade to by calling your bank.

Take the Chase Sapphire Preferred® Card, for example. It comes with a $95 annual fee. But if you decide you don’t want it later, you can contact Chase and ask them to downgrade it to the no-annual-fee Chase Freedom FlexSM. By doing this, you can keep your account alive forever without paying an annual fee — and the account will become a pillar of your credit history.

Read more: Signs Your Credit Card Needs an Upgrade (or a Downgrade)

8. Ask for Help

Temporarily lean on those with better credit than you — if you must.

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If your credit is hampering your ability to achieve some of life’s biggest achievements, such as buying a house or a car, you may want to ask family members for help in improving your score.

One common practice is to become an authorized user on their credit card. Your credit report will adopt the good credit history of the primary cardholder. It’s an injection of healthy credit practices into your credit score. They don’t even need to give you the authorized user card — they can just cut it up and allow you to reap the benefits of their good habits secondhand.

Read more: Authorized Cardholders: Pros and Cons

If you’re trying to be approved for a new loan, you can ask a family member with good credit to cosign with you.

For example, if you’d like a debt-consolidation loan but don’t qualify for one, a cosigner can help your application to be approved. This means if you default on the loan, the family member is on the hook for the bill.

Read more: What Does Being a Cosigner Really Mean?

9. Don’t Apply for New Credit

Resist the temptation to open a new credit card, no matter the sign-up bonus incentive.

Each time you inquire about a new loan, the lender will take a look at your credit to decide if you’re worthy of the loan. This is called a “credit inquiry.”

There are two types of credit inquiries:

  • Soft credit pull — These inquiries have no effect on your credit score. Lenders use them to “pre-approve” potential customers for loans.
  • Hard credit pull — These inquiries will temporarily lower your credit score. They are used when a lender is deciding whether to actually extend you a loan.

Hard pulls won’t lower your credit score too dramatically, and you’ll often see a rebound within a month or two. However, if you apply for new loans often, your credit score can see a meaningful drop. That’s because it raises red flags if you’re continually looking to borrow money. Lenders don’t like to see lots of credit inquiries because it can paint you as someone in desperate need of money.

Read more: Soft Pull vs. Hard Pull: How Each Affects Your Credit

10. Use Credit-Building Tools

Use available credit tools to aid your journey to recover.

Nowadays, there are unique ways to build your credit on the internet.

For example, Self is a lender that helps you to build credit, offering four different types of loans —  each of which you pay down monthly.  At the end of the term, Self sends you back the initial term of the loan, minus interest and a small application fee.

Each month you make a payment, they’ll report good behavior to the credit bureaus and your credit score and profile will likely improve.  The initial application may drop your credit score, but if you make all payments (essentially to yourself) on-time, it should increase.

Another method already discussed is Experian Boost™. It’s a way for those with poor or limited credit history to get their footing.

Even with a poor record of paying a credit card bill on time, many folks have a positive, consistent record of paying utilities on time. Experian Boost™ factors in your history of paying these non-loan bills to help improve your credit score. Best of all, it’s completely free.

You might also consider a secured credit card to improve your credit. Secured cards are issued by banks to those with bad credit because they are effectively zero risk for them.

Here’s how they work: you relinquish money to the bank, and they will provide you a credit card with a credit line that matches the money you’ve given them. For example, if you give the bank $2,000, you’ll get a credit card with a $2,000 limit. If you default on payments, the bank will just keep your money. And when you graduate from a secured credit card, the bank will give your money back to you.

Read more: Best Secured Credit Cards

Summary

How to repair credit is pretty straightforward — but that doesn’t mean it’s easy. You need serious self-discipline to dig yourself out of a credit hole. But you can do it!

Be sure to check your credit report for errors and dispute them with the credit bureaus. Pay all your bills on time, even if it’s just the minimum payment. Focus on eliminating credit card debt as quickly as possible, starting with the smallest balance. Keep your credit utilization low, and keep all your credit cards open and in a sock drawer, if you must, to remove temptation (as long as they don’t have annual fees).

Don’t apply for new credit. Ask someone you trust — and someone who trusts you — to be an authorized user on their credit to absorb their good habits secondhand. And explore options like Experian Boost™ and Self to improve your credit score (though users’ results vary widely).

If you’re looking for a quick credit fix, there really isn’t one. It may take months or even a couple of years for your credit score to improve, but if you plan on buying a new home, or taking on any other big debt, it’s well worth the effort.

Featured image: varandah/Shutterstock.com

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About the author

Total Articles: 35
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.