3 Solutions to Improve Your Bad Credit

There are lots of reasons people get into credit trouble. Pandemic-related job losses aside, some borrowers simply have bad habits: too many shopping sprees and fancy restaurant meals can lead to carrying large, high-interest credit card balances. Trying to juggle crushing law school debt, mortgages, and car loans is a difficult reality for many lawyers in the early years of their practice. Some of us discover we have a spouse with a spending problem—a little too late. In recent years, identity theft has become one of the chief causes of sinking credit scores. But whatever the source of your credit ills, there are a few different lifeboats that may save you from drowning. 

Do-It-Yourself Credit Triage

The first thing you need to know when attempting to repair your credit is where you stand. Download a free copy of your credit report. Don’t stop reading at your score. That can be downright depressing—and it may discourage you from helping yourself. Instead, go through it with a fine-tooth comb. Review every negative remark on it. Guess what? Some of them may be inaccurate, and you have the legal right to dispute them. You’ve got to do that in writing and in triplicate: write to all three major credit reporting agencies: Experian, TransUnion, and Equifax. It will take some time for them to get back to you, but by law, they have to respond within 30 days. Another way to approach disputing inaccuracies is to go straight to the creditor that reported them. If you provide sufficient documentation, they can also make the remarks disappear.

It’s difficult to calculate how much of a score boost you’ll see if you’re able to remove negative remarks. In theory, and according to the foremost credit analysis company FICO, your point gain can be equal to the hit your score took when the inaccurate negative remark was added. Considering a single late payment can lower your score by up to 180 points, the time you invest in disputing inaccuracies may offer very high returns.

Debt-to-Income Ratio

Payment history makes up about a third of your credit score. Another critical influencing factor is your debt-to-income ratio. Assuming your income remains steady or increases, every time you pay down a debt—reducing your mortgage balance, for example—your debt-to-income ratio improves, paving the way to a higher score.

Utility Payment History

Another strategy for bumping up your credit score is to have your utility payment history—which isn’t automatically collected by credit reporting agencies—added to your credit report. That is if you’re in the habit of paying them on time. That’s something you can’t do on your own, but a credit repair company can.

The Hands-Off Approach

A great credit repair company can be worth its weight in gold—well, in points at least. These companies take the time-consuming tasks of digging into your credit report and disputing inaccuracies off your hands. Some will negotiate directly with your creditors to try to settle your account for less. Still, others provide identity theft protection and full-on identity theft recovery services as part of their premium plans. The best credit repair strategy for you will depend on the seriousness of your debt problem and how hands-on you want to be in resolving it.