How to Fix Bad Credit

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Last updated on April 3rd, 2024

Credit scores are used to approve or deny loans and determine a loan’s interest rate. You’ll want to improve a damaged credit rating to get a loan with more favorable terms. Here are the best ways to fix your credit.

What Are the Common Causes of Bad Credit?

Before repairing a damaged credit score, you need to understand what went wrong. While several agencies provide credit scores, FICO is used the most often, with 90% of lenders favoring the model. FICO scores are made up of five parts:

  • 35% payment history
  • 30% amounts owed
  • 15% length of credit history
  • 10% new credit
  • 10% credit mix

The biggest emphasis of the FICO score is put on a person’s payment history. That means late payments or accounts in default will have the largest impact on your overall credit score. Next, a credit score is negatively affected when a high percentage of an individual’s approved credit limit is being used. For example, if your credit card has a $10,000 limit and you have a balance of $8,500, your credit score will be lower than if your card had a balance of only $2,000.

Another common cause of bad credit is not having a long credit history. Someone who recently received their first credit card or car loan will have lower points than someone who has utilized a credit card or car loan for the last five years. Adding new credit accounts can also damage a credit score if the accounts were opened relatively close together. Finally, credit reporting agencies check for a mix of credit types. Having only credit card debt produces a lower score than holding credit card debt, a student loan, and a mortgage payment.

How to Fix Your Credit: A Step-by-Step Guide

Once you understand how a credit score is calculated, you can begin taking steps to fix your credit.

Step 1: Bring Your Accounts Current

Before you do anything else, you need to bring your accounts current. Afterward, create a plan to ensure you pay all of your bills on time. Set reminders on your phone when bills are due, or list the due dates in a daily planner. Most companies also allow customers to set up auto-pay, so they don’t have to worry about missing a payment. Many even provide a discount for utilizing this service.

Step 2: Pay Down Your Debt

Next, make a list of all of your credit accounts, jotting down the available credit amount, as well as the amount you owe. Your goal is to reduce your credit utilization rate by paying down your debt. Start with the account that has the highest credit utilization rate. Once you bring that balance down, move on to the next account.

You may be wondering exactly what credit utilization rate to strive for. Experian reported the following percentages, which would be an excellent starting point.

  • Good Credit – 35.2%
  • Very Good – 14.7%
  • Exceptional – 6.5%

Step 3: Become an Authorized User

Whether you’re looking to establish a credit history, or improve your current score, becoming an authorized user on a family member’s account is an excellent strategy. Of course, you’ll need to ask a family member with a good-standing account with a low credit utilization rate if they’d be willing to add you. With this method, you’re essentially piggy-backing off of the cardholder’s credit activity. As the activity is shared with the credit reporting agencies, you’ll begin to see a positive effect on your overall score.

Step 4: Apply for a Credit-Builder Debit Card

Traditional debit cards draw money directly from your savings or checking account balance and, therefore, do not factor into one’s credit score. There are credit-builder debit cards, however, that operate like credit cards, while still withdrawing the money from your linked bank account. These cards do report activity to the top credit bureaus, allowing you to improve your credit rating.

One example of a credit-builder debit card is the Extra Debit Card. It allows users to make a purchase as a credit. The next day, the company withdraws that purchase amount from the customer’s linked bank account. At the end of the month, all of the card’s activity is reported to the major credit bureaus. As an added bonus, Extra offers 1% back in reward points for everyday purchases. It’s important to note that this card does come with a fee of $20 per month or $149 for the year.

Step 5: Utilize a Credit-Builder Loan

Individuals with little to no credit can choose to take out a credit-builder loan. This type of small loan allows borrowers to request a loan, typically in the amount of a few hundred dollars. Instead of distributing the funds to the borrower, the lender deposits the funds in a savings account. Borrowers then make payments toward the loan amount. Once the loan has been paid in full, the funds are released to the borrower. As the payments are made on time, the activity is reported to the credit bureaus.

While you don’t need a credit score to get approved for this type of loan, you will need to show proof of income, so the lender knows you have the resources to make the payments. Loans come in a variety of repayment terms, generally between 6 months and 2 years.

Step 6: Obtain a Secured Credit Card

You may be surprised to learn that you can use credit cards to build credit. A secured credit card is similar to a credit-builder debit card, but instead of being linked to your bank account, users must pay a deposit. Since you open the card with a deposit, a credit check is not required in order to obtain the card. The deposit becomes your credit limit. As you make purchases, the amount of the purchases is withdrawn from the deposit. Your activity is then reported to the credit bureaus, increasing your overall score.

The OpenSky® Secured Visa® Credit Card is one such card. It has a minimum deposit of just $200, and even offers the option to fund the deposit in several installments over a period of 60 days. The company reports that the majority of cardholders see a boost of up to 48 points after using the card for just three months.

Another option is the Self Visa® Credit Card. It reports to all three major credit bureaus and doesn’t deny anyone with bad credit. The program works a little differently than other secured cards, as customers are required to open a Self Credit Builder account and then make three on-time payments. As long as the balance is over $100 after the payments are made, the user can apply for the credit card.

Step 7: Sign Up for Experian Boost

Experian offers a special program called Experian Boost. This program is free and allows individuals to improve their credit score (with Experian only) by taking into account the timely payments of rent, phone bills, and various utilities. Although it may only improve your score by approximately seven points, it offers several bonuses that make it worthwhile. These include free credit reports, discount car insurance rates, and complimentary identity scans.

Step 8: Hire a Credit Repair Company

If the thought of fixing your credit on your own is overwhelming, you can utilize the services of a credit repair company. Credit repair companies work on your behalf to correct any issues on your credit report and negotiate settlements for the debts you owe. However, This option costs money, and with many scammers in the market, you’ll need to do adequate research before choosing which company to work with.

If you don’t mind doing the work yourself but don’t know where to start, consider contacting a credit counseling agency. Some nonprofit and for-profit counselors can create a plan to fit your needs. You follow the instructions laid out before you start seeing an improvement in your overall credit score.

Check for Errors

In some cases, bad credit is the result of an error. You should take advantage of ordering your free credit report each year. allows individuals to submit one request every 12 months for a copy of their credit report from the following three agencies: Experian, TransUnion, and Equifax. It’s also possible to go to each agency individually to make the request.

Once you receive the report, look it over with a fine toothcomb. If there are any inaccuracies, address them immediately. Once the errors are corrected, your credit score will naturally improve.

How Long Does it Take to Repair Bad Credit?

Since many factors affect a credit score, there is no way to determine how long it will take to repair bad credit. Correcting minor issues may result in a positive credit score change after just a few months; however, more serious issues, such as bankruptcy, won’t significantly improve for several years.

Ready to start fixing your damaged credit? Discover the best secured card options that offer the credit-building platform you need – and the rewards and growth potential you crave.

Featured image by  Pavlo/Pixabay

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About: Alicia Bodine
Alicia Bodine

Alicia Bodine is a New Jersey-based writer specializing in finance. With more than 13 years of experience, you'll find her work on popular websites, such as GoBankingRates, LendingTree, Sapling, Pocket Sense and Zacks. Alicia is also a certified Ramsey Solutions Master Financial Coach.

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