How to Restore Bad Credit

Good credit opens doors, allowing you to save money on needed loans and to access money for investments and experiences. Bad credit closes those doors, or makes them so expensive to open that it's not a practical option. Credit repair is a long-haul process requiring discipline and attention to detail. It often requires fundamental changes in your spending habits. By following a systematic plan, you can successfully repair your bad credit over time.

Instructions

1

Request reports from all three of the major credit bureaus: TransUnion, Equifax and Experian. You can order them from each bureau directly or use a service. Many services offer a free copy of your credit report as a way to pitch their more expensive services. To receive a totally free credit report from each of the three bureaus once every 12 months, visit AnnualCreditReport.com.

2

Make note of any unresolved negative information on your credit report. Contact those creditors and make a payment plan. Prior to making your first payment, negotiate with each creditor for a written statement saying that you've resolved the problem.

3

Set up automatic payment of all your bills through your bank. Most banks allow you to do this online at any time. If not, try setting it up through each of your creditors. Automatic bill paying forces you to pay on time, without the burden of remembering due dates and writing checks.

4

Aggressively pay down any credit card balance that is at 30 percent or more of that card's credit limit. Staying beneath that line keeps your debt-to-credit ratio where it needs to be.

5

Consider a secured installment loan if you have no credit accounts with which to start rebuilding your credit. A secured loan is one with collateral, something the bank can take away if you default on payments. Installment loans require monthly payments. Getting an auto loan is one of the best and easiest ways to begin restoring bad credit. By making monthly (automated!) payments on time, you are rebuilding your credit score with every month that goes by.

6

Build personal habits of responsible spending and on-time payments. While it's possible to make short-term adjustments to your credit score, only a long-term pattern of responsible spending will fix your credit permanently.