To repair your credit, you first need to know how bad it is. To do that, order copies of your credit report. From there, get any incorrect information removed from your file. Then you need to establish a record of good money management to show that you can handle credit.
Fixing bad credit is a long game. Improving your credit score takes time, and you must maintain good habits to keep your credit clean.
Order your credit report
The three major credit bureaus in the United States are Experian, Equifax, and TransUnion. Creditors, such as credit card companies and student loan servicers, notify the bureaus about how you're keeping up with your bills. The bureaus also share the information with other businesses when they check your credit. So you should check your file with all three bureaus.
Thankfully, federal law allows you to see a free copy from each reporting company once every 12 months. (All three bureaus are letting consumers access their reports weekly through 2022 because of the pandemic.) Order them through AnnualCreditReport.com. After answering some questions to prove your identity, you can download each report.
Also: How to check your credit score
Your credit score is calculated based on the information in your credit file, and each bureau calculates it a little differently. However, your credit score isn't part of your credit file. Some credit card companies provide the number to their cardholders (check your account online). You can also get your score if you sign up for an identity theft monitoring or credit score monitoring service: the credit bureaus and third-party providers offer these services.
Dispute any errors in your credit report
Review your credit report, looking for inaccurate information like accounts that don't belong to you, late payments you made on time, the same debt listed multiple times, and incorrect account balances. If you find mistakes on your report, contact the credit bureau whose report has the incorrect information. The instructions are on the credit report, and you can start the dispute online, by phone, or by mail.
The dispute form asks you to explain what information is wrong, and you may have to provide documentation to back up your claim. For example, you may have to provide a credit card statement showing you paid the bill on time.
The credit bureau will also ask the creditor that reported the information to check their records. Ultimately, the credit bureau is supposed to correct inaccurate information, remove information it can't verify, and keep information it verified as accurate in the credit file. The bureau won't remove correct information, even if it's negative.
However, the Consumer Financial Protection Bureau reported in January 2022 that many consumers complain they aren't getting the relief they are seeking. The CFPB said the reporting agencies provided the sought-after relief in only 2% of complaints in 2020, down from 25% in 2019. The CFPB also said the most common complaint consumers have is that the information in their credit report belongs to someone else, with more than 400,000 complaints falling in this category.
Work on your credit habits
Five factors are important in determining your credit score, and you can take action to improve your standing in most of these categories.
Payment history: This is the most important factor, accounting for 35% of the FICO score, the most commonly used credit score. Payment history shows whether you pay your debts on time -- even one missed payment can hurt your score. The most important thing you can do to improve your credit score is to pay your bills on time, paying at least the minimum amount required. Set up autopay on every account possible to ensure you never make a late payment. For bills that don't come regularly, like from the dentist, pay them when you receive them.
How much you owe: 30% of your credit score is based on how much you owe compared to the amount of credit you have available. This is known as the credit utilization ratio. Keep the amount you owe under 30% of your available credit. If you have two credit cards, each with a $5,000 credit limit, you have $10,000 in available credit. To satisfy the 30% usage ratio, you shouldn't carry a debt of more than $3,000 combined over the two cards. If you owe more, pay the amount down and keep it under 30% going forward. Paying off old debts and paying new bills in full can help your credit score. Many people mistakenly believe that carrying a balance helps your score.
Credit history: Longer credit histories result in higher scores. If you have old credit cards, keep the accounts open, even if you don't use the card. (If the card charges an annual fee, go ahead and close it.) Opening new accounts also shortens your average account age, which is 15% of the FICO score, so limit the new accounts you open.
Credit mix: The scoring algorithm likes to see a combination of account types, such as revolving credit (credit cards), student loan, car loan, mortgage, etc. However, don't open new types of accounts just to play with the mix.
New credit: The score looks at new accounts and hard inquiries lenders make when they're considering extending credit to you, trimming points from your score. Taking on a lot of new credit suggests you need money, so it can hurt your credit score.
Be patient. Your credit didn't get bad overnight, and you can't fix it overnight. Stick to your plan, and you should see some improvement within several months. How quickly you see improvement can depend on issues like how delinquent your accounts are and other negative information in your credit file.