8 Ways to Fix a ‘Bad’ Credit Score

In 2022, US consumers had an average of $5,910 in credit card debt, and every generation saw an increase in the use of their available credit. 

Credit card debt, and therefore having a high credit utilization ratio, will reflect poorly on your credit scores.

It can happen to anyone. Maybe you got in over your head with credit cards. Or you couldn’t pay your bills during a crisis. Or maybe someone stole your identity. Whatever the case, you’re now facing the challenge of fixing a “bad” credit score.

If your credit score is lower than you’d like, it’s possible to rebuild your credit and improve your score. We’ll explain how

Why is my credit score important?

A low credit score is more than just a number -- it can have a huge impact on your life.

You could have a hard time getting approved to rent an apartment. It could keep you from getting the best rates on loans and credit cards, leading you to pay higher interest rates -- or get rejected altogether. In some instances, a below-average credit score can even affect your job prospects.

How your credit score is calculated

Before you can repair your credit, it’s important to understand how your credit score is calculated. And that starts with your credit reports.

Credit reports contain information on your payment history and status for your credit accounts, including credit cards, car loans and student loans. This data is reported to the three major consumer credit bureaus: Equifax, Experian and TransUnion. 

You might have different results with each because not all lenders and creditors report to all bureaus, and they don’t always report at the same time each month. All three reports should look similar, though.

Companies use formulas -- called scoring models -- to create your credit score based on the information in your credit reports. Just as you have more than one credit report, you have more than one credit score, depending on which scoring model the company uses. 

For the purpose of this article, we’ll be referring to your FICO score -- one of the most popular credit scoring models -- which is divided into five categories:

• 35% payment history: Your past pattern of payments (on-time or late -- and how late) can raise or lower your credit score.
• 30% amount owed: The balance you carry on all accounts compared to the amount of credit available to you is your credit utilization ratio. Your credit score will improve as this percentage decreases.
• 15% length of credit history: The longer you’ve owned a credit account, the more it can help your credit score.
• 10% new credit: When you apply for new credit, the card provider will likely pull your credit (also known as a hard inquiry). Inquiries can remain on your credit report for two years, but FICO only counts inquiries from the last 12 months.
• 10% credit mix: This is the variety of credit you hold (installment loans, credit cards, mortgages, etc). Lenders may consider you less risky of a borrower if you can manage multiple types of credit.

Your credit score is continuously updated as your credit profile changes. FICO scores generally range between 300 and 850. Credit scores under 580 are considered “poor” and those between 580 and 669 are considered “fair.”

8 steps for fixing your credit score

1. Check your credit report and score

If you want to increase a low credit score, the first step is to look at your credit report and review it for accuracy. 

You can access free weekly online credit reports from the three bureaus by going to AnnualCreditReport.com. It’s important to get your credit report from all three credit reporting agencies. 

Checking your own credit score is a soft hit on your credit and will not impact your score. You can typically see the score for free if you have an account with a bank, credit card company or other lender. You can also get your score by meeting with a nonprofit credit counselor.

2. Dispute any errors

If you find an error on any of your credit reports, dispute the error right away. You may need to provide documentation indicating what information is incorrect (such as confirmation that you paid your bills on time if they were reported as late). 

The credit bureau typically has 30 days to complete its investigation, according to the Fair Credit Reporting Act.

Depending on the error, a resolution could improve your credit score quickly. However, there is still more work to do to boost your score.

3. Get bill payments under control

The biggest impact on your credit score is your payment history, which accounts for 35% of your score. If you want to improve your credit score, paying your bills on time will help. One way to stay on top of your payment due dates is to set up automatic payments for your existing accounts. This way, you don’t have to remember to make a payment every month.

While we always recommend paying off your full balance, if you can’t afford it, paying the minimum amount due can help you avoid late fees and even higher interest fees. Paying the minimum will also slowly chip away at your balance, which will improve your score over time. 

4. Set a goal for less than a 30% credit utilization ratio

Your credit utilization ratio is calculated by dividing your total debt owed by your total available credit. 

So, if you have a $3,000 credit limit and a credit card balance of $800, your credit utilization rate would be 26.67% ($800 divided by $3,000). 

In general, the higher your utilization ratio, the lower your credit score. While your payment history is the most important factor in calculating your FICO credit score, your credit utilization ratio is the second most important.

If your credit utilization ratio is 30% or higher, set a goal to get it lower than 30%, with 10% or less being the ultimate goal. Paying off your outstanding balances quickly and avoiding taking on more credit card debt can help you reach your goal faster. You can also ask to raise your credit limit, though this tactic may not work if you’re still using your credit card for purchases.

If you have a significant amount of outstanding credit card debt, you may be able to consolidate the debt to make payments more manageable and pay it off faster. A debt consolidation loan can offer lower interest rates to help you save as you pay off the debt.

5. Limit new credit inquiries

Anytime you apply for credit or ask for a credit limit increase, an inquiry is made on your credit. There are two types of inquiries -- a soft inquiry and a hard inquiry. 

A soft inquiry does not affect your credit score and occurs when:

• You check your own credit score.
• You give permission to an employer to check your credit.
• Credit card companies check to see if you’re preapproved for offers.
• Financial institutions you do business with check your credit.

A hard inquiry happens when you apply for new credit, and it can hurt your credit score. While one hard inquiry may only have a temporary effect, multiple inquiries in a short time frame can damage your credit score and lead lenders to assess you as a risky borrower. 

6. Avoid closing old credit cards

If you’ve paid off a credit card and don’t plan to use it, you may think that closing the account is the right move. Actually, closing old credit cards can lower your credit score even more. Credit history length accounts for 15% of your credit score, and the longer your credit history, the better.

Instead, hide the old cards in some place safe so you can’t easily use them. If you can handle the card responsibly, consider putting one recurring expense on the card each month -- like a Netflix subscription -- then pay it off in full and on time. 

Otherwise, the issuer may close the account due to inactivity. If your credit card has an annual fee, it may be a good idea to close the account if you don’t plan to use it again.

7. Consider a balance transfer card 

If you’re swimming in credit card interest, one possible solution is moving your balances to a low- or no-interest balance transfer credit card. 

Balance transfer credit cards typically offer an introductory 0% APR for nine to 21 months. This lets you consolidate high-interest credit card debt onto one card, combining your payments and saving you in interest. 

Before applying for a balance transfer card, make sure you can afford to repay your debt within the introductory period -- otherwise, you may find yourself right back where you started.

To figure out how much you’ll have to allocate toward the balance each month to pay it down in time, divide the balance by the number of months in the promotional period. Just remember to include the balance transfer fee, too, which is typically 3% to 5% of the transferred balance.

The balance transfer fee is added to the transferred balance, rather than having to pay it upfront. While paying an additional fee is groan-inducing, it’s usually far better than leaving a large credit card balance on a card with a high APR.

8. Apply for a secured credit card 

Rebuilding your credit can take time, but if you don’t qualify for a traditional credit card, you can improve a bad credit score with a secured credit card. 

A secured credit card works just like a regular credit card, but your credit limit is typically based on a refundable security deposit. For instance, if you put down a $500 security deposit, your secured credit card limit will likely be $500. 

With good payment history and credit usage, your credit limit may increase and you can get your deposit back. You may even have the opportunity to upgrade your card to a traditional credit card.

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