How to Improve Bad Credit

Man uses calculator while looking through financial statements


While damaged credit could stay with you for a long time, it's doesn't have to be the end of your story. There are ways you can help your situation, and it starts by gaining an understanding of your credit problem spots. Here are seven steps that you can take to improve your credit.

1. Read Your Credit Report

The first step is to get a handle on your credit situation. This begins with obtaining and reviewing your credit report. Make sure that you're familiar with every entry on your credit report and fully understand why your credit may have suffered.

Your credit report will list both your debts and any issues that you've had. In certain cases, late payments may have knocked down your credit score. Your credit report will also show your debts. Ultimately, your report will help you understand the extent of what you owe.

2. Contest Errors on Your Credit Report

Not everything on your credit report is correct. Just because something appears in writing on your credit report does not mean that it's accurate. Sometimes, creditors have either entered wrong information or hurt your credit by reporting nonpayment of a disputed debt.

You have the ability to challenge disputed credit entries by contesting them with the credit bureaus. They must consider your challenge and adjust your report if you're correct. You might even need to contact the Federal Trade Commission if you're not getting any relief. Either way, closely scrutinize each entry on your credit report and fight the entry if necessary.

3. Analyze Your Debt Situation

Your low credit score could come from one of several problems. You might be facing too much debt, or you may have problems paying your debt in time. Perhaps you have even had past credit problems that have largely gone away but still remain on your record.

The type of credit difficulty that you have will dictate your strategy in repairing your credit. Take the time to familiarize yourself with the scope and extent of your problems.

During this process, add up all debt from different sources to learn exactly how much you owe. Once you're familiar with all your debt, you may be able to piece together how you ended up in a bad situation. This could help as you seek to set better habits and gradually restore your credit score.

4. Establish a Record of Timely Debt Repayment

One of the key parts of fixing your credit score is persuading creditors that you're a worthy credit risk. Besides a manageable debt load, creditors like to see that you have a track record of timely debt payments. Even if you're only paying back a little money each month for every single account, this is enough to show creditors that you're committed to paying off your debt.

Make sure to at least pay the minimum each month on every account that you have, even if you're not able to pay accounts in full. Eventually, the fact that you missed payments in the past will matter less as you establish a record of timely and regular debt repayment. This is even true if you can't make much of a dent in the principal amount.

5. Pay Down Your Debt

Of course, what's even better than making minimum payments is establishing a trend of declining debt balances for your accounts. When you reduce what you owe, not only does it reduce your debt load, but it also becomes a part of your credit history.

Creditors may look behind your absolute credit score and detect any patterns in your credit history. When they see an overall improvement in your debt picture, they may be more inclined to overlook past problems. About the best thing that you can do here is to pay down your debt because it demonstrates improvement.

At the same time, you should keep your credit accounts open, even if you have paid the debt. Closing accounts, especially when you have a track record of payment, takes away your credit history after 10 years.

6. Responsibly Use New Credit

Even if you have bad credit, you're not completely cut off from getting new credit. In fact, one of the best things that you can do is find some new credit so you can begin to establish a more favorable credit history.

You can open a secured credit card, which is a first step toward righting the ship when it comes to your score. However, you should cut back on the number of new credit accounts that you apply for since that can lower your credit score.

7. Keep Up Your Credit Repair Efforts

Improving your credit score takes time. Remember that some bad entries on your credit report can take up to seven years to go away. Thus, repairing your credit history is not something that will happen overnight.

Instead, fixing your credit score is a gradual process that takes years of sustained effort. Once you start your efforts, it's crucial to keep going so that you can realize the benefits of better credit. You can move your credit profile in a better direction with some forethought and commitment. Creditors will see a positive trend on your report and will begin to trust you again over time.

Fixing your credit begins with a realization that you can help fix your own problems. Once you understand the problem, you can resolve to fix your credit issue, and you can do it a little at a time.