10 Ways to Recover from Bad Credit this Year

10 Ways to Recover from Bad Credit this Year
GUIDE
Erica Sandberg
By: Erica Sandberg
Updated: February 18, 2020
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Have some unfavorable items on your credit report? Take steps to restore your credit rating! There are many methods you can use that will make your reports look attractive to lenders.

Here are 10 great ways to recover from bad credit. Not all will be appropriate for you, but odds are that at least a few will be a way for you to shift from bad to good credit — and in less time than you may think.

1. Pay Off Debts in Collection

If you’re focused on your credit scores, such as those produced by FICO, know that paying off a collection account won’t raise those numbers much (if at all). That’s because evidence that an account went unpaid will remain on your report for a total of seven years.

However, if you satisfy that collections debt, lenders, landlords, and employers will see that you did the right thing. The perception will likely be that you’re on a better financial track after going off the rails.

2. Lower Your Credit Utilization

Credit utilization is a major credit scoring factor. A credit card company will update the credit reporting agencies with your most current balance, and if it’s too high in relation to your overall credit limit, it will appear that you’re overextended.

Credit Utilization Chart

Good credit scores generally reflect a credit utilization of 30% or less.

That makes you a poor credit risk. Therefore, if you can pay down your debt to well under 30% of the credit limit, do so now.

By the next payment cycle, the credit scoring company will factor in that information, which will translate to a higher score.

3. Request a Higher Credit Limit

In the event you can’t pay the debt down, try asking the credit card company for an increase in your credit limit. If they agree, your credit utilization ratio will automatically decrease.

For example, maybe you owe $900 on a credit card with a $1,000 limit. That puts you at a 90% ratio.

However, if the new limit is $5,000, the ratio becomes 18%, which puts you firmly in the safe zone. If you’ve been a responsible customer with that creditor, they may consent even if your credit scores are low.

4. Always Pay on Time, Starting Today

The worst thing you can do to your credit history and scores is miss payments. A couple of delinquencies in the distant past won’t be dramatically terrible, but a succession of them in the last few years is an indication that you’re in financial trouble, and will cause your credit scores to plummet.

Chart Showing Time Items Take to Age Off a Credit Report

Late payments will harm your credit report and score for seven years, with less negative impact over time.

Although you can’t erase history, you can change the future. From this point forward, meet your due dates.

The more on-time payments listed on your reports, the less the old dings will matter.

5. Don’t Be Afraid to Use Credit

You can’t create a great credit rating without actually using credit products. The easiest way to reboot your score is to use a credit card at least once a month, keep the charges low (if your limit is $1,000, don’t exceed $300), and pay your bills on time and in full.

By doing this, you’ll be feeding excellent data to your credit reports, proving that whatever you did in the past was an anomaly. Remember, credit scores only use the information listed on a credit report to develop a score, so you want a lot of charges and payment activity showing up on your file.

6. Mix Up Your Credit Accounts

If you only have one current account on your credit report and the rest of the information is less than favorable, slowly but surely add more accounts to your credit portfolio. Eventually, you’ll want to pepper your credit reports with a loan or two, a couple of different credit cards, and maybe a finance company.

FICO Credit Score Factors

Your credit mix accounts for 10% of your total FICO credit score.

Manage all of your accounts responsibly. It will ensure that any problems you had before will be overshadowed by using a variety of account types in a positive way now.

7. Dispute Errors on Your Credit Reports

Obtain a copy of your credit report and scan it carefully for errors. It’s certainly possible that mistakes or fraud are damaging your reports and scores.

Perhaps an identity thief opened an account in your name and left you — and your credit report — with an overdue bill. The Fair Credit Reporting Act, which is governed by the Federal Trade Commission, gives you the power to dispute such information.

When the item is removed, your credit will instantly improve.

8. Seek a Credit Repair Service

If you don’t have the time or energy to dispute old or false information on your report that’s hurting your credit, consider patterning with a credit repair service. For a fee, that company will do it all for you.

A professional will scan your reports, focus on any negative data that can and should be expunged, and will act on your behalf. Below are our top-recommended service providers:

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Of course, you can do it all yourself for free, but it’s similar to hiring a gardener to mow your lawn when your back is out. Under the right circumstances, it can make sense to let an expert do it.

9. Become an Authorized User

If you are unable to open a new credit card or take out a loan because your credit is bad, consider asking a friend or family member who has good credit to help you out. By piggybacking on that person’s credit card account as an authorized user, the credit card will show up on your credit report.

As long as the account owner pays the balance off in full every month and never skips a payment, your own credit reports and scores will benefit — without you having to do anything.

10. Add Non-Traditional Accounts

If you pay your rent on time every month, you can get credit for it. Fee-based companies such as Rental Kharma and RentTrack will send that information to the credit reporting agencies.

Or, if you have a cellphone or utility account with a track record of positive payment history you would like to have listed on your reports, Experian has a free Boost™ program that enables you to have those accounts appear on your report as well, which can immediately hike up your scores.

Screenshot of Experian Boost Website

Experian Boost considers phone and utility payments to immediately improve your credit score.

Experian says Boost™ raises its average user’s FICO 8 Score by 13 points.

Choose the Right Course of Action for You

As you can see, there’s no reason to panic or give up when your credit is bad. There are ways to recover from bad credit with the correct course of action — you just have to do it!

Building credit takes time, but by using one or more of the methods above, you can see an improvement in your credit score sooner than you think.