This site is privately owned and is not affiliated with any government agency. Learn more here.

Learn 5 Steps You Can Take to Start Repairing Your Credit

Your credit history is a financial measure that banks and other institutions look at before they decide to lend you any money. If you have a good credit score and history, you’re more likely to obtain more favorable loan terms, which can include lower interest rates. 

However, if you have a lower score, you’ll likely need to pay a higher interest rate for whatever amount you borrow. Depending on the amount you borrow, this can cost you hundreds of thousands of extra dollars over time. 

If you have a credit score that you’d like to improve, don’t worry. There are many different ways you can improve your credit score and repair your credit over time. 

The higher your credit score, the more likely you are to be in good financial health. The following sections explain five simple steps you can take today to start repairing your credit now. 

Step 1. Set up a plan to start paying off your debt. 

If you have a low credit score, it’s probably because you’ve got some unpaid debt. If you borrow a lot of money and don’t pay it off, this will have a negative effect on your credit score. 

Likewise, if you have any unpaid medical bills or utility bills that have gone to collections, this will also impact your credit in a negative way. In order to effectively repair your credit, you’ll need to pay off any debt you have. 

If you want to improve your credit, you’ll first need to come up with a plan. This means you must consider the following points: 

  • Figure out why you went into debt in the first place – There are many situations that cause people to fall into debt. Sometimes medical emergencies can cause them to wrack up hospital bills, while other people forget to pay their credit cards off on time. No matter your situation, you need to figure out why you went into debt so you can better predict how to avoid being in this situation in the future. 
  • How you’ll start repaying your debt – If you have debt, it’s probably because you spent more money on your credit card or borrowed more money from a bank than you can afford to pay back. In order to eliminate debt, you’ll need to determine how you can pay what you owe. This might mean picking up a part-time job or reducing your monthly spending. 
  • Set up payment plans – If you are behind on your hospital bills or still owe on utilities from a few months ago, you need to set up a payment plan to eliminate your debt. Usually, this means you need to call the accounting office for the company you owe and negotiate an arrangement so you can resolve your bills. 

Step 2. Consolidate your debt. 

If you’ve maxed out several credit cards and can’t remember when to pay them, you might benefit from consolidating your debt onto one card. 

Debt consolidation can also be a good solution for you if the credit cards you currently have carry high interest rates. A high interest rate affects how much money you need to pay your lender over time, which is added in addition to the principal amount you borrowed. 

If you’re interested in consolidating your debt, you can transfer the outstanding credit card balances you have onto a new card. 

There are many different credit cards that are made specifically for people who want to transfer their debt onto a new card. Usually, these cards come with zero annual percentage rate (APR) during the first year you have the card. This means you won’t need to pay any interest on your balance during that time. 

Best Balance Transfer Credit Cards

Step 3. Get a secured credit card. 

If your credit score is less than what you’d like for it to be, getting a secured credit card might help you to start rebuilding your credit. This is an especially good option if your credit score prohibits you from being approved for an unsecured card. 

Unlike typical credit cards, you can’t start using your secured credit card until you put a security deposit down on that card. Then, this security deposit becomes your credit limit. This means you’ll never be able to spend more on your secured credit card than what you put down as your deposit. 

Secured credit cards don’t pose much risk to the lender, so you shouldn’t have any trouble getting approved for one of these cards. 

Best Secured Credit Cards

Step 4. Set up automated payments. 

If you’re in debt because you have trouble remembering to pay your bills on time each month, setting up automated payments can be a helpful option for you. This option is usually available in online portals. 

Whether you need to pay your credit card or utility bills, there should be an option for you to arrange for your payment to be automatically taken out of your bank account each due date. This way, you’ll never miss another payment. 

However, make sure you only utilize this option if you’re sure you’ll always have enough funds to cover your payment. Otherwise, you’ll overdraw your bank account, which can make you subject to even more fees. 

Furthermore, make sure your money is set to be withdrawn after your payday. If not, the funds won’t be in your account, and you’ll run into issues with your bank and the company you were trying to pay. 

Step 5. Always pay your bills on time. 

Another critical component that can make or break your credit is whether you pay your bills on time. 

When most people think of credit, they only think of money you borrow and need to pay back, like with credit cards or loans. However, failing to pay your utility bills on time each month can also have a negative affect on your credit score. 

Therefore, it’s important that you make sure to pay these bills before they’re due. By catching up on overdue payments and staying on top of new utility bills, you can improve your credit over time.