How to Fix Bad Credit

While it can take years to build a good credit history, it can be all too easy to earn a bad credit score. Spending more than you earn, moving or changing jobs constantly, racking up credit card debt, defaulting on student loans–all of these things and more can cause your score to plummet. While there are a number of companies that advertise credit repair services, it is possible to fix your bad credit on your own without having to pay someone else to do it.

Create a Spending Plan

Too often, people are in debt and have bad credit because they’ve never taken the time to create a plan for how their money will be spent. If you don’t have a budget or spending plan, now is the time to learn how to create one. Not only will a spending plan help you to determine where your money goes each month, it can also help you to ensure your bills are paid on time, which will help raise your credit score.

Eliminate Debt

If you’re carrying around multiple credit cards with high balances that are close to or at the overall limit, then your credit score is guaranteed to suffer. Once you’ve created a basic spending plan and you’ve been on it for a few months, the next thing you need to create is a plan for getting out of debt. The faster you pay down your debts, the more money you’ll save in interest and fees and the less time it will take for your bad credit to recover. As you lower your overall debt load, you decrease your ratio of debt-to-available credit which will increase your credit score.

Use Credit Wisely

Once you’re paying your bills on time and taking steps to get rid of your debt, resist the urge to take on new debt such as credit cards, lines of credit, car loans or home loans. Even something as simple as applying for a new line of credit, even if you don’t intend to use it, can drop your credit score significantly. If you have credit cards that remain active, keep the usage for these accounts to a minimum.

Check Your Credit Report

You should check your credit report from all three credit reporting bureaus at least twice a year to determine if there are any errors present or any incorrect information on your credit history. If you find any errors, it’s important to take steps to dispute them with the credit bureaus and have it removed. Having negative or false information removed from your credit report can give your credit score a significant boost.

Avoid Scams

There are a number of companies that make claims that they can magically repair your bad credit for a small fee, of course. While there are legitimate credit counseling services available that can help you with budgeting and financial planning, there are also a large number of scam companies that will only make your bad credit worse. Credit repair companies will often do more harm than good and may employ illegal or unethical practices to "fix" bad credit.

If you want to try to fix your bad credit, the best way to do so is through hard work and the passage of time. While your score won’t necessarily bounce back overnight, you can take small steps that will eventually add up to a big change for your credit history.