If you have a poor credit score, it’s probably costing you money. Higher loan rates and insurance premiums are likely when you have bad credit, and you may not even qualify for some loans. You can even be turned down for a job if you have poor credit! These tips will show you how to repair a bad credit score.

Looking to repair your bad credit? Late payments, collections, and charge-offs damage your credit score. Use these 5 tips to rebuild your credit and earn a better score.

If you have bad credit, you may think a good credit score is impossible to get, but these tips will help you get a better score. Most of these tips will not give you an overnight fix, it takes time to see a positive change in your score.

When you are ready to work on getting a better score, pull a copy of your credit report to review it. They can be ordered from any of the credit bureaus directly, or some sites like Credit Karma offer free copies as well.

1. Dispute incorrect information

Review your credit report for any inaccurate information. Correcting errors on your credit report can boost your credit score quickly!

Look at each listed account and verify the following:

  • Is the outstanding balance correct? There is usually a delay for the balance to be updated with each payment, so mainly look for any glaring discrepancies.
  • Is the payment history correct? Look for any reported late payments. Make sure that only payments you were truly late are reported as late.
  • Is the account status accurate? Verify that accounts that you have closed are reported as closed and that paid accounts are reported as paid.

Common credit reporting mistakes:

  • A paid or closed not updated to a closed status
  • A paid or closed loan still showing a balance owing

If you find an item on your credit report that isn’t correct, you’ll want to open a dispute with the credit bureau. They will open a case and investigate your dispute.

Once the item has been investigated, your credit report will be updated (if it was incorrect) or you will be notified of the result.

2. Decrease your utilization ratio

This refers to the balances you currently owe on your cards/lines of credit relative to the limits of the cards. You should aim for a ratio of 30% or less.

If two people have identical credit, other than one owes $500 on a $5000 limit credit card and the other owes $3000 on the same $5000 limit credit card, the one with the lower balance will have a better credit score.

You can make larger payments so you owe less on your credit cards. You can also improve your utilization ratio by requesting a credit card limit increase (but I only recommend this if you won’t be tempted to spend more with the bigger limit).

3. Have at least three items on your credit

Many lenders like to see a variety of loans on your credit report. Also, a person with payment history for three loans will typically have a higher score than a person with just a single loan on their credit report.

Note: Your monthly bills like utilities do not show up on your credit report. Make sure when you pull your credit report that you have at least three open accounts.

4. Pay your debts on time

Your payment history is an important piece when your credit score is calculated. Just one late payment can cause a big decrease in your score.

Even if you can only pay the very minimum, regular on-time payments will go a long way in improving your credit.

Note: this only refers to debts (credit cards, car loans, etc). Your monthly bills (cell phone, utilities, cable) don’t affect your credit unless they go to collection.

5. Resolve negative items to improve your credit score

You’ll want to payoff any collections or charge-offs on your credit report. Start with the newest ones since they have the biggest affect on your credit score.

If you can’t pay the newest ones, then start with the smallest one. One paid collection is better than no paid collections.

Don’t have the extra cash? Check out my latest money saving posts here.

You could also see if the lender/collection agency is willing to settle. The prospect of getting some money may entice the lender to take less than the full amount. This is especially possible if you have money that you can pay right now.

Note: Only pay collections and charge-offs if you are making your other debt payments on time. The chargeoffs/collections are already negative items. Don’t risk other negative items at the cost of trying to fix others.