Want to create a successful financial future? Your credit score is an important weapon in your arsenal.
This three-digit number can affect everything from your ability to get a job, a home and a car, and it influences how much you wind up paying in the long run on car loans, mortgages and other major expenses. And it can also affect your ability to refinance student loans or other loans.
If you’ve got a credit score of “Good” (660-699) or below, you’re in need of some help. (Don’t be surprised by that misnomer “Good”; on a grading chart of A through F, “Good” is the equivalent of getting a C. You’ve eked by, barely.)
The good news is that you can repair and rebuild damaged credit. Here’s how.
Know What Matters Most
Five factors determine your credit score, and these factors are not weighed equally. In order of most influential to least influential, these include:
- Payment history (35% of your score) – Do you pay your bills on time? Have you made any late payments? How late were they (30, 60, 90 or 120 days past due)? The more late payments you make, and the longer you take to pay them, the worse your score.
- Debt utilization ratio (30%) – How much of your total available credit, across all cards, do you use up each month? Using more than 10% of your available credit lines could reflect poorly on your score—even if you pay the amount in full each month. Your utilization ratio is determined by your outstanding balance on the day that your creditor reports to the agencies (one random day each month) — regardless of whether or not that balance is carried past the due date.
- Credit history length (15%) – How long have you had your accounts? The longer, the better.
- Number of credit inquiries (10%) – Applying for too many cards at once will hurt your credit. Specifically, more than two inquiries per year can cause trouble. Why? It’s a bit like dating — you don’t want to seem too desperate. Applying for credit several times each year can make you seem desperate.
- Types of accounts (10%) – It’s best to have a mix of installment credit (regular, fixed payments like your mortgage or car loan) and revolving credit (credit cards, store cards, etc.)—and it’s better if that mix includes more installment credit than revolving credit. That said, don’t take out an installment loan purely for the sake of improving your credit score. You can achieve similar results by opening a credit card and paying the balance in full each month, an interest-free option.
Prioritize Your Tactics
Now that you know which factors have the biggest impact on your credit score, the most sensible way to rebuild your credit is to tackle the more influential factors first. Once those are in order, you can go about fixing the less-influential (but still important!) ones.
The following list details the top 11 ways you can go about rebuilding a damaged credit score. The strategies listed first are the ones that will make the most improvement to your score the fastest, so start at the top and then work your way down the list.
1. Pay overdue bills pronto
Remember, the longer bills are overdue, the more they hurt your score. Your first order of business is to take care of any late payments ASAP. But before you send in that payment, read the next tip.
2. Negotiate negative information away
Before you send the payment, call the original creditor (or the collection agency, if applicable) and ask them to remove the negative information from your credit report.
The collection agency may say that only the original creditor holds this authority. If so, ask for the name and phone number of the person with that authority.
Tell that person that you’re taking steps to improve your financial life, and that you’ll pay the amount owed in full, and plead for a removal of the negative information from your report. Ask for this promise in writing.
3. Pay your bills promptly going forward
The easiest way to do this is to set your bills to auto-pay so the money is automatically deducted from your checking account; you don’t even have to think about it.
If you struggle with fluctuating income and like to have more control over when your payments are made, set a reminder on your phone or calendar a week or two before each bill is due.
4. Aggressively pay down existing balances
Devote yourself to a repayment plan that will enable you to throw as much as possible towards your credit card balances each month.
This might mean slashing certain budget categories for a while, taking on a temporary second job or selling some of your unused stuff.
Do whatever it takes to get that debt utilization ratio under 10%. Ultimately, you should retain a zero balance at the end of each month, but for now, shoot for 10% first.
5. Stop charging so much (or anything at all)
Charging more to your cards while trying to pay them down is like trying to empty a swimming pool while it’s simultaneously being filled with a hose.
Put your cards in a drawer, cut them up, freeze them in a block of ice… whatever you need to do to resist the urge to swipe that plastic.
6. Pay your bills more often
If you love charging everything to your cards to rack up rewards points, make a point of paying down the balance more often than once a month (weekly or even daily is better) to keep that debt utilization ratio low.
7. DON’T cancel old cards
You may think that getting rid of unused credit cards will help your credit score, but it actually hurts you. Older cards help you establish a longer credit history.
A quick and easy way to keep an old card active and build positive credit history is to set up one small, recurring charge to the card month—like your Netflix or Hulu subscription—and use the auto-pay feature to pay off the balance in full each month.
8. Work on building GOOD credit
Once you’ve cleaned up the things that lead to a bad credit score, it’s time to start establishing a positive credit history to boost your score even higher.
This means making small purchases each month and paying them off in full, and on time, each month. Just be cautious when someone else adds you as an “authorized user” to their account (a tactic sometimes used for building credit).
If that person damages their own credit, you’ll share in the blame. And if you damage their credit, you’ve just lost a relationship.
9. Apply for non-standard credit cards
If you have a sketchy or non-existent credit history, it can be tough to build positive credit because the big card companies are less likely to be willing to extend you a credit line.
If this is the case, you can apply for store cards or gas cards (which typically hold more relaxed approval criteria) or apply for a secured credit card, which is a credit card secured by a bank deposit.
Specifically, you put down a security deposit that’s roughly equal to the amount of your credit limit. Eventually, you can use these various lines of credit to make small purchases each month and pay them off immediately.
10. Monitor your credit report
You can request a free credit report once a year from each of the three major credit reporting agencies (Experian, Equifax and TransUnion) by going to annualcreditreport.com.
The smartest strategy is to request a report from one agency per quarter so you can keep tabs on your credit score throughout the year. If you see any errors in a report, notify the reporting agency immediately.
11. Raise your credit limits
This one is last because it’s not recommended for everyone and comes with an important caveat: You should only consider doing this if you pay your balance in full each month (which we always recommend no matter the case) and are 100% certain it won’t tempt you to simply start charging more.
The purpose of this tactic is to reduce that debt utilization ratio. Filling up that higher line of credit with more debt each month would defeat the purpose.
As you can see, credit repair is a long-term goal. You won’t be able to do all of these things overnight — it can take months, if not years, to repair a credit score — but by the time you reach the end of this list, you should find your score in much better shape than it is today. Best of luck!
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
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|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.80% – 6.22%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.57% – 8.17%6||Undergrad & Graduate||Visit Citizens|