Having bad credit is a bad feeling. Maybe you pulled your credit report for the first time and got some bad news. Or maybe you had good credit, but made a couple of bad decisions — curse that 15%-off promotion that tempted you to apply for a store credit card you then forgot about! — that ended your perfect record. Meanwhile, some people have bad credit not because they did something wrong, but because they haven’t done enough right.
But when it comes down to it, why you have bad credit isn’t as important as how you go about fixing it. While there’s never a one-size-fits-all solution to repairing bad credit, here are some steps that just about anyone can take to get some forward motion on their credit report in the span of a year.
Step 1: Pull Your Free Credit Report
It sounds elementary, but the first thing you need to do is pull your free credit report (federal law allows you to pull one free credit report per year from each of the three major credit bureaus). Once you’ve done that, you’re going to have a way better idea of where it is you stand and what’s harming your credit score.
The first thing to check is whether there are any mistakes on your credit report. While the oft-reported statistic that “one in five” people have have errors on their credit report isn’t entirely accurate, it’s still true that millions of American consumers have errors on their credit report that are negatively impacting their credit scores.
Addressing any errors you find on your report is the very first step you should take in repairing your credit (and it’s a big one). You don’t want to challenge data points on your credit report you know to be accurate, but even the slightest doubt as to the legitimacy of a debt on your credit report should be investigated to the fullest.
Step 2: Pay Down Existing Debts
There’s no substitute for paying down existing debts when it comes to repairing your credit. In fact, of all the factors that will have a significant impact on your credit score, this is the one that you’re going to have the most control over.
Think about it: You can’t go back in time and pay your old bills on time. But you can throw significant amounts of cash at your existing debts and get your credit utilization rate down.
All told, the amount of your available credit limit that you’re using is the second-biggest factor in your credit score, after paying your bills on time — and it’s a very close second at that. Spending just a year getting serious about paying down your debt to manageable levels can help you to significantly raise your credit score.
Step 3: Pay Off Old Debts
You also might want to pay off old debts. Why might?
Put simply, a debt that’s older than two years has done almost all the damage it’s going to do to your credit score. Paying it off now isn’t going to put a lot of upward pressure on your score, though you still need to make all your minimum payments on time.
Debts that are newer than two years old should be paid off (as in Step 2), but older ones should be considered on a case by case basis. Even then, you shouldn’t be thinking about this step until you’ve made a big dent in your existing new debts.
Step 4: Stop Missing Payments
The biggest factor in your credit score is payment history. Even one missed payment can end up costing you close to 100 points off your scores.
So, going forward, think about automating your payments — you can usually set this up through your bank’s website. That way you don’t have to remember when each of your payments is due throughout the month. If you prefer an old-school approach, simply automate yourself: Set aside a half hour every Friday to sit down and churn through all your bills and finances, like clockwork. Then you can make sure that one late or missed payment doesn’t wreck all the hard work you’ve done repairing your credit.
Having good credit is mostly just about exercising common sense. The simple acts of removing errors, paying down debts, and consistently making sure your bills get paid on time are really all it takes to attain a good credit score. It might take you a little while to get the machine running again, but it can happen sooner than you think.