Finding out you have bad credit usually comes at the worst possible time. You might not even know how bad it is until you get denied for a new credit card, cell phone, or car loan.
When you check your credit reports, you may be surprised to find one or several negative accounts tarnishing your credit scores. Or maybe you’re not even sure how to interpret all of the information listed there!
Once you figure out what’s on your credit reports and how it affects your credit scores, you can start your DIY credit repair journey. Fixing your credit is not something that can be done overnight, but at the same time, you don’t have to wait years to see improvement.
Do-It-Yourself Credit Repair: The Benefits
As you start to see that number increase, you’ll also begin to notice all of the related benefits that come with having a good credit score. You’ll be able to get approved for more credit cards and as long as you continue to use them responsibly, you’ll have higher credit limits while paying lower interest rates.
You don’t have to carry the burden of bad credit for the rest of your life.
In this DIY credit repair guide, you’ll learn what factors affect your credit score, plus both short-term and long-term strategies for fixing your credit. We’ll also teach you how to get negative information removed from your credit reports and where to go if you need additional help.
What Determines Your Credit Score?
Your credit score is a numerical reflection of all of the financial information contained in your credit report that comes from one of three credit bureaus: Equifax, Experian, and Transunion.
Creditors and other companies send in financial information related to you and other consumers to help build an accurate representation of your creditworthiness.
Some creditors report to all three bureaus, while some may only report to one. The information on your credit report is then filtered through a scoring model to create your credit score.
There are different scoring models used for credit scores, but the most popular one used by lenders and credit card companies is the FICO score.
When a creditor reviews your application for a new credit card or loan, they’ll check your credit reports and credit scores to determine your creditworthiness.
Based on that and other financial information, they’ll decide if you qualify for a credit card or loan. If you do, you’ll receive a higher interest rate if you have poor credit because they think you pose more of a risk of defaulting on your payments if you have a rocky financial past.
When you have excellent credit, you get the best terms and conditions available. Clearly, it’s important to have the best credit possible so you can keep your interest payments low.
So what exactly is on your credit report and how does it affect your credit score? Here’s how it shakes down.
The biggest chunk of your credit score is determined by how well you pay your bills each month. In fact, payment history accounts for a whopping 35% of your credit score! You’ll see this history listed on your credit reports through different accounts you’ve had over the last seven years.
Under every loan, credit card, or mortgage you’ve had, you’ll see how much you’ve paid each month for an extended period of time compared to how much the monthly bill totaled.
Other creditors like cell phone carriers or utility companies can report late payments, but they typically don’t report payments that are made on time.
If you do have a late payment listed, it’ll be marked with exactly how late it was, ranging anywhere from 30 days to 150 days (or more, if the account went into default). The later the payment, the more your credit score will drop as a result.
Next, 30% of your FICO score relates to how much debt you owe. Installment loans like a mortgage or student loan aren’t weighed as heavily, but your revolving debt (which includes credit cards) is a much larger component.
Lenders look at your debt-to-credit ratio, or credit utilization, which calculates how much you owe compared to your maximum line of credit on your credit cards.
If you’re close to being maxed out, your credit suffers. Since it’s a ratio, two people with the same amount of debt could have totally different credit scores if their maximum credit card balances are different.
A person with $3,000 charged on a credit card with a $10,000 maximum balance only has a 30% debt-to-credit ratio. But someone else with $3,000 charged on a credit card with just a $5,000 limit would have a 60% ratio and — all other things being equal — a much lower credit score.
Length of Credit History
15% of your credit score hinges upon the length of your credit history since a lender simply can’t gauge your ability or willingness to repay a loan if you don’t have a history proving you’ve already done so. The scoring model takes into account how long your various accounts have been open, including loans and credit cards.
Unfortunately, rent payments aren’t usually included in the FICO score, but there are rental reporting services that you could use as additional documentation in your credit application.
Another section you’ll see on your credit reports is called Inquiries. This refers to each application for new credit you’ve submitted in the last two years and can affect 10% of your credit score.
Each inquiry will shave off about five points during the first year unless multiple inquiries were completed for the same product within a few weeks of each other. That just indicates you were rate shopping for a loan or credit card and is typically just treated as a single inquiry.
The final 10% of your credit score is determined by the types of credit you have. We mentioned that revolving credit like credit cards or retail cards hurt your credit score more than installment debt. Installment loans have some sort of asset tied to them, like a house or a car.
These types of loans show you own something of value and are more committed to paying off those loans compared to unknown purchases from a credit card.
Student loans are also viewed more favorably than credit cards because they indicate an investment in your future earning power; and the more money you make, the faster you can pay off your loans!
Negative Information on Your Credit Report
The FCRA limits the length of time a negative item can stay on your credit report while positive and neutral items are usually reported indefinitely.
Plus, the amount of damage each negative mark causes on your credit score fades little by little over time. That means your bad credit can’t last forever as long as you start implementing some positive behaviors.
Negative accounts can successfully be removed from your credit reports before the usual time limit, although it’s not always possible depending on your situation. You might also prefer spending your time getting newer negative marks removed since older ones drop off sooner.
Here’s a look at each type of negative account you may find on your credit reports, and how long you can expect them to stay there if you can’t or don’t try to get them removed.
A charge-off occurs when a creditor decides a debt is not collectible. Rather than carry it on their books as an overdue or past-due debt, they can instead eliminate it from their reportable past due accounts.
By charging off the debt, the company’s accounts receivable report improves; however, that doesn’t mean the debt has disappeared. In most cases, the debt is sold to a “debt buyer” who pays pennies on the dollar for the face value of the debt.
By purchasing the debt, the debt buyer can now attempt to collect the amount owed (plus court fees, interest, late charges, and more) by contacting the debtor and taking them to court for the full value plus any applicable fees.
Charge offs can remain on your credit report for up to seven years plus 180 days from the original date of delinquency.
Collections are complicated because paying them off may actually end up hurting your credit score by resetting the start date from when it was reported. Before taking action on collections, read on to find out how to navigate these murky waters.
Like charge-offs, collection accounts may be reported for up to seven years from the date you first fell behind with the original creditor.
Even if you eventually catch up on what you owe, any payment that is more than 30 days late can appear on your credit report.
However, some creditors don’t report the past due payment until a second payment is owed because they don’t want to upset good customers who simply forgot to the deadline and made it up the following month. Credit reporting rules do require that after a second payment is missed, all past due payments must be reported.
Delinquent accounts may be reported for up to seven years after the date of the last scheduled payment.
Bankruptcies may be reported for no more than ten years. If your case was dismissed, the ten years starts from the date of dismissal.
The amount of time also depends on the type of bankruptcy you filed. Chapter 13 bankruptcies stay on for only seven years, while Chapter 7 bankruptcies stay on your credit report for the full ten years.
Foreclosures may also be reported for up to seven years. Luckily, you don’t have to wait that long to buy a new house once you regain your financial footing. You could qualify for a mortgage as soon as two years, though sometimes longer depending on the type of loan.
Judgments may be reported for up to seven years from the date the lawsuit was filed or until the governing statute of limitations has expired, whichever is longer.
Most statutes of limitation are shorter than seven years, so that is the likely maximum time a judgment or lawsuit will show up on your credit report. To be sure, check your specific state laws for details.
Repossessions may be reported for up to seven years as well. It’s worth noting that regardless of whether it’s listed on your credit report, you are still financially responsible for any remaining debt after the property (such as a car) has been repossessed.
Under federal law, unpaid tax liens may be reported on your credit reports indefinitely. However, the credit bureaus could remove them after a decade or so. Paid tax liens may be reported from the date of payment for up to seven years.
The DIY Credit Repair Method
Do-it-yourself credit repair is certainly possible without hiring an outside company. Before you do, though, familiarize yourself with the Fair Credit Reporting Act (FCRA) so you know your rights when dealing with the credit bureaus, creditors, and even collection agencies.
Follow these step-by-step instructions to learn how to identify negative entries like late payments, delinquent loans, and others, and have the best chance of getting them eliminated from your credit reports.
Step 1: Access Your Credit Report
Hopefully, you’ve already accessed a copy of your credit report from Equifax, Experian, and TransUnion. If not, getting your free credit report from each credit bureau from AnnualCreditReport.com is the first step.
Enter some personal information, answer a few security questions to verify your identity, and you can download your free credit report in a matter of minutes. You can also send a request for a hard copy of your credit report to be sent in the mail if you prefer. Or you can call 1-877-322-8228.
Step 2: Review Each Credit Report Carefully
Once you have your credit reports in hand, you should check them for accuracy. Your credit reports won’t always be the same since some creditors and lenders only report to one or two bureaus.
Even if they do report to all three, one credit bureau may make a mistake when entering your payment history. So it’s vital that you look at all three with a fine-tooth comb instead of just assuming that the information is the same on each one.
First, make sure your basic personal information is correct and that no other persons are listed on your credit reports. Then, carefully scroll through each page and look at all of your account information.
From the opening date of your account to the highest balance you’ve had, note any sections that look incorrect, especially if there’s a negative mark like a late payment.
You also want to confirm that you own each of the lines of credit to make sure no one has fraudulently opened an account under your name. If there are any accounts that you don’t recognize, you may have been a victim of identity theft.
Collections & Public Records
Once you’ve looked at all of your open and closed credit accounts, pay close attention to the negative records section of your credit report.
Here you’ll find any accounts you haven’t paid as agreed, collections, or public records you’ve had. Anything listed in this section causes the most damage to your credit score and should likely be on your list of items to try and get removed.
Step 3: File Disputes and Request to Have Negative Info Removed
If you find any inaccurate, untimely, misleading, biased, incomplete, or questionable items on your credit report, it’s both your right and responsibility to dispute the information and get it removed. Plus, removing negative items on your credit reports can also have a huge positive impact on your credit scores.
While many people still don’t realize that it’s possible to have them removed, there are thousands of consumers successfully disputing such items every day. It’s actually easier than you might think and also a much better alternative to simply waiting years for negative information to drop off of your credit reports.
Writing a Credit Dispute Letter
Start off by mailing a credit dispute letter to the credit bureau that is listing the negative item. You can find a sample dispute letter here. Keep a copy for yourself and make sure you select return receipt so you have proof they received your letter. Also, make sure to send it by certified mail.
From that point, the credit reporting agency has 30 days to respond to your request. If you ordered your credit report from AnnualCreditReport.com, they have an additional 14 days to respond making it a total of 45 days.
Some people will tell you that you can dispute online, but we’ve found that people get much better results disputing through the regular mail. To find out more, please refer to Why You Should Never Dispute Credit Report Errors Online.
What to Include
In your dispute letter, make sure you detail all the incorrect information in your credit report. If you have supporting documentation, include copies — not the originals. But, it is not necessary to include supporting documentation. Remember, the burden of proof is on the credit bureaus and creditors reporting the information about you.
Also, be sure to include your name, phone number, and current address. Use a polite and professional tone without injecting any personal opinion. You can either list the reasons why you’re disputing or simply state that you wish to dispute it.
Once you request the dispute, an investigation by the credit reporting agencies is required by law and the relevant creditor must provide proof of the item’s accuracy.
You might have to go back and forth several times between the creditors and credit reporting agency. It can take a lot of time and effort, but the effects on your credit could well be worth it.
How to Improve Your Credit Score
You can still improve your credit score even if you can’t get any negative items removed, or if you decide to wait for them to fall off of your credit reports naturally. It’s also important to handle collections with care so that you don’t mistakenly reset the date of the statute of limitations.
Follow these steps as part of your comprehensive credit repair strategy to make sure you take advantage of all opportunities and avoid unintentional setbacks that could cause lasting damage.
Assess Your Accounts in Collections
Start off by looking at your recent collections. They have the most impact on your credit because newer debt is weighted more heavily. Also, pay attention to the type of debt you’re paying.
Medical debt doesn’t affect your credit as much as other types of debt so focus on any non-medical debt first. Try to make full payments since partial payments can reset the time limit for how long those accounts can remain on your credit reports.
You can also try to negotiate a settlement with the collection agency to pay less than you owe. Just realize that you may have to report the amount that was dismissed as income on your tax return, which could result in higher taxes and even a higher tax rate if it bumps you into another income bracket.
Another issue with paying off debt collections can occur if the collection agency acts as if you haven’t made any payment at all. Avoid this scam by getting payment agreements in writing and keeping copies of all documents related to the account.
Continue to Monitor Your Credit
Once you’ve taken care of your accounts in collections, make sure those changes are accurately reflected on your credit report. It may take a month or two for the accounts to drop off, so wait several weeks before checking your credit report and your credit score.
If you don’t see any positive changes or the negative item is still listed, you should file a dispute with the credit bureau. As long as you kept good records, you should have all the appropriate documentation you need for a quick dispute process.
Quick Tips for Repairing Your Credit
Getting negative items on your credit report removed can have spectacular results on your credit score, but the credit repair process can take a lot of time.
If you’re looking for quick improvements, there are still a few strategies you can employ. Some are small fixes while others can still have a big impact, so check the whole list to see which ones you can try today to fix your credit.
Lower Your Credit Utilization Ratio
Remember that credit utilization ratio we talked about earlier? The closer you are to maxing out your credit cards, the lower your credit score will be.
So, it makes sense that paying down your credit card balances can lower your ratio and increase your credit score. Focus on maxed-out credit cards rather than those with low balances; by doing so, you could see as much as a 100 point increase over a period of a few months.
Request a Credit Limit Increase on Credit Cards
If you can’t afford to pay off extra debt to decrease your credit utilization, you still have a chance for improvements. Call one or more of your credit card issuers and request an increase on your credit card limit.
You don’t want to actually charge any more than you already owe. You simply want to have a higher limit so that your existing credit card balance consists of a smaller percentage of your available credit.
Here’s an example. Say you owe $5,000 on a credit card with a $10,000 limit. You’d be utilizing 50% of your credit. But if you got your limit up to $15,000 then your $5,000 balance would only be utilizing 33% of your limit.
When making the call to your creditor, it helps if you’ve submitted regular on-time payments throughout your history with them. More than likely, they’ll value customer loyalty enough to help your credit line.
Become an Authorized User
Building your credit history takes a lot of time, but there is a shortcut available. Find a close friend or family member who has long-standing, strong credit and ask to become an authorized user on one or more of their accounts. That credit card account will automatically be added to your credit report in its entirety.
There’s a bit of risk involved with this move: if your friend or relative stops making payments or carries a large balance, those negative entries will be added to your credit history.
Likewise, if you rack up extra balances and don’t help make any payments you’re responsible for, the other person’s credit will become damaged. This can be a great tactic, but it does require some caution.
Consolidate Your Credit Card Debt
Another quick way to repair your credit is to consider getting a debt consolidation loan. It’s basically a type of personal loan that you use the pay off your various credit cards, then make a single monthly payment on the loan.
Depending on your interest rates, you might be able to save money on your monthly payments by getting a lower loan rate. Shop around using pre-approvals to see what kind of rates you qualify for and how they stack up compared to your current credit card rates.
Even if your monthly payment stays the same, your credit score will still see a boost because installment debt is viewed more favorably than revolving debt.
Get a Credit-builder Loan
Smaller banks and credit unions often offer credit-builder loans to help individuals repair their credit. When you take out the loan, the funds are deposited into an account that you’re not able to access.
You then begin making monthly payments on the loan amount. Once you’ve repaid the entire loan, the funds are released for you to use.
It may seem strange to make payments on money you can’t even spend, but it’s a way for the financial institution to feel protected while you get a chance to prove yourself as a responsible borrower.
Once you successfully complete your payments and receive the money, the bank reports your payments as on-time to the credit bureaus to help out your credit score.
How to Maintain Your Credit Health Over Time
After you’ve taken care of all the items from your financial past affecting your current credit, it’s time to look towards the future. Here are some tips to get you started maintaining that increased credit score so that you don’t fall back into old patterns.
Stick to a Budget
Living within your means is one of the most important ways to keep your finances and your credit on track. Even if you’re good at making your paychecks last each month, make sure you’re tucking a portion of your money away in a savings account so that you can take care of any financial emergencies that pop up.
Avoid putting extra expenditures on a credit card because it’s more difficult to monitor how much you’re actually spending. Instead, check your bank account each evening to see how you’re doing, or even use the all-cash method to prevent tempting yourself with impulse buys.
Pay Your Bills On Time
You now know that the biggest part of your credit score hinges upon how timely you are paying your bills each month, particularly those that are likely to report the information to the credit bureaus. And just a single late payment can cause your credit score to take a serious nosedive.
Get out the calendar and start organizing your due dates so you know exactly what you owe throughout the month. If you need extra help, set up automatic payments through your bank.
Use a Secured Credit Card Responsibly
After getting your monthly finances together, you want to start thinking about further complementing your credit with a credit card. If you have trouble getting approved for one, consider signing up for a secured credit card. It’s specifically designed for people recovering from poor credit.
You make a security deposit in an amount that serves as your credit limit. You don’t pay for your monthly balance out of that fund, it simply serves as collateral as you start to make payments on time.
You might start off with a limit as low as $500 but over time, you can work up to higher limits and eventually get rid of the secured credit card altogether. In the meantime, you’ll build up a new history of positive payments regularly reported each month.
Sign Up for a Credit Monitoring Service
Credit monitoring services allow you to keep an eye on your credit report and credit scores. The best credit monitoring services come with a small monthly fee while others, like Credit Karma, are completely free. Either way, keeping track of what happens with your credit is highly recommended.
How Else Can I Get Credit Repair Help?
When you feel intimidated by repairing your credit, there are several resources you can tap to get help. Some are free, while others cost money depending on the services they provide.
Whichever one you choose, do your best to fully research the credit repair company or organization to make sure they have independent positive reviews and always keep your best interests at heart.
One of the biggest obstacles when it comes to credit repair is misinformation. If you want to be sure you’re getting valuable information that you can trust, you need to find reputable sources. Luckily, there are several agencies that can help point you in the right direction.
The Federal Trade Commission (FTC) is in charge of protecting consumers’ rights. This government agency offers information on credit and credit repair, as well as tips for individuals who want to hire a reputable credit repair company.
Because the Federal Trade Commission investigates thousands of fraud claims involving credit repair, they take an extra cautious stance when it comes to credit repair companies in general.
The Consumer Financial Protection Bureau helps to protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law. The CFPB’s website is often the best place to submit a complaint against financial products or services.
When you submit a complaint the CFPB works to get you a response. Most companies respond to the complaints within 15 days.
The BBB (Better Business Bureau) is another consumer advocacy organization, but it is not a federal agency.
They do, however, collect information on both local and national levels about all types of companies, including credit repair companies. They also provide free resource pages that cover various tactics on how to manage your credit and get yourself on track.
Both of these agencies provide information on free credit repair but for actual free credit repair help — that is to say, advice — you will likely need to turn to additional sources.
Free Credit Consultations
Many credit repair agencies offer credit help for free, at least in terms of initial information to get started. It’s common for these credit repair companies to offer free initial consultations, as well as websites full of free downloadable documents to help you on your path to increase your credit score.
This is typical of most reputable credit repair companies. You’ll get personalized advice on your individual scenario along with how they recommend you proceed. In addition to providing you with an action plan, a real credit repair company trying to help you won’t ask you to sign anything until you’re ready.
Feel free to get consultations with more than one credit repair service so you can compare strategies and prices and pick the one that feels right to you.
Accessing Information from Specialized Bureaus
Once you’ve got your credit report in order from the three major credit bureaus, you may want to think about reviewing your files from specialized credit bureaus.
The information on these credit reports may or may not be relevant to you, it just depends on your financial history. Here is a brief background on each one to give you an idea of other places that might impact your creditworthiness.
You might be listed in ChexSystems if you have had trouble with a bank account in the past. You could have had a checking account closed due to excessive bounced checks or insufficient funds, unpaid negative balances, or other issues.
The next time you go to open an account at another bank, you’ll likely be denied if you’re in ChexSystems; in fact, 80% of banks use this as criteria for the account approval process.
You can access your ChexSystems report by contacting them here:
Attention: Customer Relations
12005 Ford Road, Suite 600
Dallas TX 75234
See also: No ChexSystems and Second Chance Banks
You may not have knocked off Professor Plum in the library with the candlestick, but you still might have a CLUE Report. This agency tracks your insurance history and any claims you may have filed in the past.
It covers both auto claims and personal property claims and is used by insurance companies to determine whether or not they want to offer you new coverage and how much they’re willing to provide. If you have a substantial history of claims over the last seven years, they may be hesitant to offer a comprehensive insurance plan.
Here’s how to find out what’s on your CLUE Report:
If you’ve had any type of civil lawsuit, tax lien, bankruptcy, or other judicial judgment, you can access all of your public records from CourthouseDirect.com.
Rather than going to multiple locations in different cities and states where you’ve lived, you can instead order your public records from this one spot.
When you go to sign up for utilities at a new home or apartment, your previous history will be checked against the National Consumer Telecom & Utilities Exchange (NCTUE).
The utility company can then see if you’ve had a history of delinquency and decide whether or not to provide you with service. Access your own utility history at NCTUE.
Many landlords also do a background check when selecting their next tenant. Sometimes they do this as a soft pull on your credit report.
They might also access your rental history through a service that specifically screens renters for information like evictions, criminal records, and identity fraud. Core Logic is one such company providing this service to landlords.
Medical Insurance History
Finally, the Medical Insurance Bureau tracks your medical insurance claims. This helps future insurance companies determine the kind of health background you have and determine the risk associated with taking you on as a customer.