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A Short Guide to Fixing Bad Credit

Repairing bad credit has been likened to losing weight: It takes time and there is no quick fix. Fixing bad credit is going to take time and a commitment from you, but overtime your efforts will be rewarded. Follow the guide below to start getting your scores moving in the right direction. 

1. Check Your Credit Report

If you haven't already, start by requesting a credit report. Begin by checking it for any errors, as your credit report contains the data used to calculate your credit score and it may contain errors. Specifically, make sure that there are no incorrectly listed late payments for any of your accounts and that the amounts owed for each of your open accounts is correct. If you find errors on any of your reports, you'll want to contact the credit bureau and dispute them. 

2. Pay Your Bills On Time (And Pay Extra if Possible)

Payment history makes up 35% of your FICO score calculation (the largest percentage)1. So if you're currently trying to make your way out of a sticky credit situation, the biggest step you can take is to never miss a payment or pay a bill late. Consistency when it comes to payments is extremely important when it comes to fixing poor credit, as delinquent payments, even if only a few days late can have a major negative impact on your FICO Scores. While paying the minimum is better than not paying anything at all, paying off more each month can help you owe less over time by eliminating additional interest on the debt; so if you can, consider paying a bit more than your minimum payment. 

3. Diversify Your Assets

Your financial history will benefit from have several different active accounts, such as savings, credit cards, checking, etc. The more credit history and variety you establish for yourself in the market, the more likely it is you'll be trusted to handle additional funds. This doesn't mean you should open up 5 new credit cards tomorrow (you should apply for and open new credit accounts only as needed), however opening new accounts responsibly and paying them off on time will raise your credit score in the long term.

4. Don't Be Afraid to Ask 

Those who want to fix their credit may want to do a few more things to get their numbers in check, such as requesting good-will deletions from their report. This may end up being a very smart move if you only have a few blemishes on your record. Credit companies are usually more willing to work with their customers, especially if those customers that are loyal to their brand. The more good will you establish with any given company, the more likely it is they'll cut you a break on your reports.    

5. Make New Rules 

Part of establishing credit for yourself is figuring out what works for you. If it's difficult to budget your credit cards every month, try paying your credit cards down twice a month. Not only will this make it harder to miss the minimum balance by the end of the month, it will also keep your total credit utilization down. Your credit score is also greatly affected by how much credit you use per month. The less you use, the more likely it is your score will climb in the right direction.  

Living by a smarter financial philosophy means not opening and closing accounts, or constantly requesting credit limit increases. Consider limiting hard inquiries into your credit report whenever possible, though this is a low level of priority compared to failing to meet the monthly minimums. Finally, consider keeping an eye on your credit and accounts for unusual activity — even if you haven't used the accounts for quite some time. Credit identity theft has become an increasingly popular form of crime, and no one is immune. 

1.FICO, 2018

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.