Planning to get a mortgage or another big loan? Repairing your credit score is one of the best things you can do for your long-term financial stability. It will give you more options to choose from and better offers. 

Whether you’re facing debt or other problems, our handy credit repair handbook can boost your chances of securing a good loan. 

But before we look at the actual steps you can take to improve your credit score, let’s talk a bit about your credit reports.

How to Get Your Credit Reports

Before you follow the steps in this guide, make sure you get an up-to-date copy of your credit reports. You can get your reports for free every 12 months here. You can also request them by mail, but that takes longer. 

You can and should get a free credit report from each of the three major credit bureaus. Getting all reports will help you gain a complete overview of your credit. Some lenders report only to one of the bureaus, so not having all reports could mean missing out important information.

Review your reports carefully before moving on to the next step. If you come across an account, an amount, or an address you don’t recognize, you have the right to dispute it. Sometimes errors can creep into the report and hurt your credit rating.

The national average FICO credit score is 703. Scores below 629 are deemed bad. If you have a bad score, you should try to repair it before applying for a mortgage or think about requesting any credit for that matter.

But even if you have a fair score (630 to about 700), you may still want to try to improve it. Ideally, you’d aspire for a score above 720, which most lenders consider to be excellent.

Now let’s look at the practical steps you can take to boost your score.

Step 1 – Identify What’s Been Hurting Your Score

Your credit score is defined by payments history, amounts owed, and length of credit history, among others. The most common problems that can lead over time to a low credit score include:

• Not paying your credit card balance.
• Not paying your loans or bills on time.
• Consistently using more than 30% of your credit.
• Taking out a new loan when your credit score is low.
• Taking multiple loans in a relatively short amount of time.
• Applying to multiple lenders at once.
• Closing old credit accounts and using new ones in their place.

Pro tip: Focus on what’s pressing—you need to take care of due accounts and unpaid loans before you start worrying about using too much credit or closing old accounts.  

Step 2 – Pay Past Due Accounts and Other Debts

Do any due accounts show up in your credit report? Pay them as soon as possible. Prioritize accounts that are still open. Often, this is the single most important step to redressing your credit score.

Next, pay all bills and loans on time, including rent, utilities, auto loans, and phone bills. It’s one of the best ways to maintain a good credit score.

You want to avoid bills going to collections. That said, keep in mind that older late payments don’t have as big an impact on your credit score as recent ones.

Pro tip: Payment history makes up 35% of your credit score—it’s the most important factor. Late payments can show on your report for up to 7 years, so you really want to avoid them.

Step 3 – Reduce Credit Card Balances

The second most important credit factor is credit utilization. The rule of thumb is to limit credit use to 30% of the credit limit for any card. Using less than this can further increase your score.

A good strategy is to bring balances down across all your credit lines. Focus on current balances that carry the most weight. Lower maxed out credit cards below the limit, and then pay the balances.

Paying off loan balances is also important. A good balance means a better score. However, credit card balances have a bigger impact than loan balances, which is why it’s good to start with them.

Pro tip: Keeping your credit utilization below 10% isn’t easy, but it can make a big difference. Aim for this if you can too boost your score faster.

Step 4 – Resolve Charged-Off Accounts

Pay past due accounts before they become charged-off. This happens if you do not pay them within 180 days. At this stage, you can also try to pay off accounts that have been sent to collections. 

When you can’t pay a charged-off account in full, try to agree to a settlement with the creditor. This is not always possible, but it’s worth looking into. 

Pro tip: Sometimes it’s possible to pay for your charged-off accounts and collection accounts history to be deleted from your report, but you have to check this with your creditor.

Step 5 – Leave Credit Cards Open

When you’re dealing with a bad credit score, closing credit cards won’t make a positive difference. On the contrary, it’s likely to further lower your score. This happens especially when the credit account carries a balance.

Pro tip: Settle debts and balances first before worrying about closing credit cards. Also, leave old cards open since they may improve your financial credibility.

Step 6 – Avoid Hard Inquiries

Don’t request a new credit card line, mortgage, or any other type of online credit until you deal with due accounts and high balances. 

If you want to use new credit as a way to improve your credit history, thicken your credit file, and prove to your lender that you can make payments on time, here are some of your options:

• Become an authorized credit card user.
• Sign up for a secured loan. 
• Get a credit-builder loan.

Pro tip: Soft inquiries don’t usually affect your credit score—these include regular checks from existing credit card issuers or inquiries from a new potential employer. 

The Bottom Line

As a summary, pay accounts that could become past due first—all of them if you can. Next, reduce credit card balances and then deal with charged-off accounts or those that have been sent to collections.

If you succeed in doing this, you will improve your credit history considerably. You will then be able to get a much better mortgage.

Last but not least, watch out for any inaccurate information in your credit report and dispute it if you have to. When inaccuracies creep in, your score may get a hit.

Finally, don’t forget that repairing your credit can take time—don’t expect results overnight.