How to Start Fixing Bad Credit in 5 Easy Steps

Low credit scores and complicated credit reports are not uncommon. More than 100 million Americans have no credit history, low credit scores, or credit reports listing significant consumer debts. It’s not difficult to fall into bad credit, but it can be incredibly challenging to recover from it.

Fortunately, though, challenging does not mean impossible. You can do several things if you have bad credit to begin fixing it. The process may take time; in some cases, consumer attempts to fix bad credit only serve as a starting point. However, taking these steps to start fixing bad credit can make the overall repair process faster and easier.

Let’s review the steps consumers should take when attempting to repair bad credit.

Preparing to Fix Your Credit

The first step any individual should take when attempting to remedy a history of bad credit is to obtain a copy of their credit report. Experian, TransUnion, and Equifax offer free credit reports once per year, so if you’ve not requested your annual credit report, that’s a great place to start.

When reviewing your credit report, look for any accounts or purchases you don’t recognize. While credit reporting agencies are usually quite efficient in ensuring the accuracy of credit reports, these agencies are not perfect. If you notice a mistake on your report, dispute it immediately with the agency that lists the account.

Common credit report mistakes that can be disputed include:

• Accounts attributed to your report due to the account owner having the same name (or one similar) as yours
• Completely fraudulent accounts opened by means of identity theft
• Closed accounts being reported as open and active
• An incorrect assumption of account ownership when you’re only an authorized user on the account
• Accounts incorrectly deemed late or delinquent
• Duplicate accounts
• Incorrect balances or credit limits
• Outdated accounts that should have been removed from your report

Correcting these errors can help remove some of the burdens of your credit repair efforts. Additionally, working with an accurate credit report can shed light on the steps needed to initiate effective repair methods.

Once you’re certain that the report you’re looking at is accurate, it becomes easier to fix bad credit. To continue repairing your credit, follow the steps below.

Easy Credit Repair Techniques

When researching your credit repair options, you likely happened upon a myriad of articles and credit repair companies making seemingly impossible promises to repair your credit for you. In plenty of cases, these companies offer to fix credit issues for a price. While you want to believe that a small investment will resolve your problems, you might want to explore your options before committing to this type of endeavor.

Often, these credit repair companies can do no more for your credit report than you can on your own. If you’re seeking professional help, try contacting an established financial institution.

It can be challenging to decide which advice to take or which service to try. Fortunately, there are several steps you can take on your own to repair your credit. Fixing bad credit isn’t something that will happen overnight, but if you try the steps listed below, you’ll surely be on your way.

#1- Eliminate Delinquent Charges

If you have any accounts that are delinquent or have gone to collections, prioritize paying off those accounts. Start with accounts that have the smallest balances, and once you’ve brought the balance down to $0, you can request that the account be removed from your report.

For accounts with larger balances, it might be worth contacting the collections agency handling your account. In some situations, these agencies are willing to settle for an amount lower than what you owe. If possible, negotiate a new balance and payment plan, then stick to it until the account is paid off.

Even if you’re only able to manage small payments at a time, eventually, your balances will decrease, and once the account has reached a $0 balance, you’ll be able to remove it from your report.

#2- Pay Your Bills on Time

Your billing history accounts for just over ⅓ of your credit score, so correcting that behavior will help improve your credit if you have been paying bills late. Organize your bills and set reminders that notify you when your bill is coming due.

By paying your bills on time and in full, you can improve your credit history and increase your score simply by being prompt when it comes to taking care of your expenses.

To add to the benefits of paying your bills on time, it may also be a good idea to pay your bills using an application designed to increase credit scores through bill payments. Experian Boost, for example, is a tool any consumer can use to automatically boost their credit scores by a couple of extra points when paying bills.

If you rent your residence and have always paid your rent on time, you might also want to consider subscribing to a rent reporting service. This way, your diligent payments can be used to boost your credit score.

#3- Work on Your Credit Card Balances

If you owe more than ⅓ of your credit card limit, do your best to avoid increasing that balance. This is especially important if your credit card comes with high-interest rates.

Small purchases can add up over time, and leaving the balance to keep growing each month can make a manageable credit card bill turn into a serious financial problem in very little time.

A high balance and high-interest rate can make it quite difficult to pay down credit card debt, so while working on it, try not to accrue any additional charges on your credit card. If possible, freeze your credit card account until you’ve paid the balance. This way, you won’t be able to absent-mindedly add charges to the account you’re actively working to reduce.

Additionally, it’s wise to avoid applying for a new credit card during your credit repair journey. One exception lies in debt consolidation. Suppose your balances are far too high to manage realistically. In that case, a low-interest debt consolidation option might help you pay off those high balances without high-interest rates getting in the way.

#4- Limit Your Expenses

Limiting your expenses might be the most difficult part of repairing your credit, because much of the time, the money we spend each month is necessary.

Still, looking at your bank statements might help you locate products and services that add tens or hundreds of dollars to your financial obligations. If you find a product or service you don’t need, consider canceling the service or reducing the number of times you purchase the product.

For example, if you pay for three streaming services, consider canceling one. If you buy an $8 cup of coffee daily, consider buying coffee three days a week or buying a cheaper, smaller beverage daily. Don’t eliminate all of the little expenses that help you get through the week, but try your best to save money where you can.

#5- Keep Your New Spending Habits (and Adopt More)

It will take time to repair your credit, but while working on it, it’s good to make your new financial behaviors a permanent part of your life.

Stay ahead of your bills, save money where you can, and work on paying your credit card balance altogether each month.

While trying to make the most of your income, it’s also wise to look at your current banking situation. If you have a checking account that charges you a fee for seemingly everything, you might want to consider switching to a better bank. Overdraft fees, maintenance fees, minimum balance fees, and the like can drain your accounts, and when you’re already trying to repair your finances, unnecessary fees can be a detriment.

Explore your banking options and work with a company that aims to provide you with support and assistance on your journey toward greater financial health.

To take advantage of optimal banking options, credit repair assistance, and a myriad of helpful finance tools and resources, visit iTHINK Financial.

Our financial organization differs significantly from banks you’ve worked with in the past, and the supportive services and educational materials available through our Financial Wellness Center are bound to provide immense assistance in securing your finances.