Credit scores have many enemies — from late payments and collections accounts to tax liens and court judgments. Each takes a toll on your credit standing to varying degrees. And the damage unfortunately comes far faster than any resulting recovery.
There is no such thing as a quick fix to serious credit-score problems, you see. There are only four legitimate ways to fix or repair your credit, and they’re all free.
We’ll explain each of the four pillars of credit repair in detail below. Just remember, each step on its own will not be enough to completely fix your credit. Credit repair, after all, is like peeling an onion: You have to peel away a few layers before you get to the good stuff. But we’ll try our best to make sure your credit recovery doesn’t bring you to tears.
Step 1: Dispute Credit-Report Inaccuracies
Roughly one in five people have an error on one of their credit reports, according to the Federal Trade Commission. And the wrong error could knock you into a lower credit tier, forcing you to accept less attractive financial products and generally spend more than necessary.
So parsing all three of your major reports and disputing any mistakes that you find could produce fairly immediate credit-score gains. The best part is that disputing credit report errors is easy enough for anyone to do on his or her own.
If you’re not comfortable navigating the credit-repair process on your own, you can seek help from a nonprofit credit counselor or a select few for-profit companies. Lexington Law is among the for-profit consultancies that have successfully helped people remove negative items from their credit reports.
Basically, the trick is to aggressively dispute negative records, especially older ones, and force the source of that information (otherwise known as “data furnishers”) to produce verifying documentation. A lot of times, the so-called data furnishers can’t, which obligates them to stop reporting the negative item to the credit bureaus and thus removed from the consumer’s file.
Negative records that you cannot successfully dispute will remain on your credit reports for roughly seven to 10 years. The best way to overcome such negatives is to add a pile of new positive information to your credit reports. Doing so dilutes the negative information and shows that you’re really a responsible borrower who just made a few mistakes. We’ll explain how to go about doing that in the steps below.
Step 2: Piggyback on Excellent Credit as an Authorized User
If one of your family members has good or excellent credit, ask to become an authorized user on one of their credit reports. As an authorized user, your relative’s account will be added to your credit reports. And as on-time payments are made, the resulting positive information will help to lessen the impact of your past mistakes. That will lead to credit-score improvement.
In other words, you can basically hitch a ride to better credit.
Plus, it’s worth noting that authorized users can’t be held responsible for missed due dates or other misuse of the account. So if your relative screws up, you can simply ask the credit bureaus reporting the information to scrub the records from your file.
As a result, there is very little downside to being an authorized user. And there’s a lot of upside potential, considering that it’s possible to build excellent credit with authorized use alone.
Step 3: Satisfy Collections Accounts & Delinquencies
The newest credit-scoring models stop considering collection accounts once they’ve been paid. In other words, figuring out a way to repay what you owe — or negotiating a deal with your creditor — can produce immediate credit-score benefits if you have a collection account, medical or otherwise, on your file.
This alone probably won’t repair your credit completely. But every layer of negative information that you can strip from your credit report will improve your credit score.
Similarly, catching up on payments for a delinquent account won’t repair your credit. But it will prevent the damage from worsening. More specifically, finding a way to change the status of a delinquent account from “past due” to “paid” or “settled” will stop the bleeding and allow you to proceed with your repair efforts.
Step 4: Reduce the Amount of Credit You Use
Credit utilization is the ratio of your account balance to your spending limit. It basically indicates whether you are using too much credit, which, for the purpose of maintaining good or excellent credit, is generally above 30% of what’s available. The ratio is calculated for each of your credit cards individually as well as for all of them collectively. The lower your credit utilization ratio(s), the better it generally is for your overall credit score.
So how do you improve your credit utilization in the name of short-term credit-score gains? The easiest way is to pay early and often.
Paying your outstanding balance a few days after you receive your paycheck, rather than waiting until your due date, will help minimize the balance that’s reported to the credit bureaus and used to calculate your credit utilization. This can work both with multiple monthly payments or a carefully timed single payment. Automating withdrawals from a bank account is a great way to enforce the plan and eliminate forgetfulness.
Extra Credit: Monitor & Perfect
Keep a close eye on your credit score throughout the repair process, as its daily changes will serve as an indication of your progress. You can do so for free on WalletHub, the first site with free daily credit-score updates. We’ll also analyze your latest credit score to identify weaknesses and tell you how to improve.
For more information, check out WalletHub’s top tips for everyday credit improvement. And if you’re dealing with really significant damage, you might also want to check out our guide on how to rebuild your credit completely.
Ask the Experts: Getting a Fix on Fixing Credit
Fixing damaged credit can be a very daunting task. So we called in reinforcements. We posed the following credit-repair questions to a panel of personal finance experts. You can see who they are and what they had to say, below.
- What is the biggest mistake that people make when trying to fix damaged credit?
- When you have damaged credit, does it ever make sense to pay for help fixing it?
- Does it make sense for consumers to dispute accurate negative records on their credit report, in the hopes that the data furnisher won’t have the necessary documentation?
- What is the best tip you have for someone trying to fix their credit?
Ask the Experts