Repairing your credit

Last update: August 2023

This page will tell you everything you need to know about improving your credit score.  If you haven't already read my introduction to Credit Reports & Credit Scores, I strongly suggest you read that first.

How to improve your credit score

As you know from the Credit Reports & Scores page, you improve your credit score by cleaning up your credit report.  Below are the tried-and-true ways to clean up your credit report.  This is truly everything you need to know.  Don't pay for credit repair services, because they can't do anything for you beyond what's listed here.

Late payments & collections

Credit scoring myths

Myth: Checking my credit score or getting my credit report hurts my credit score.

FACT: No, it doesn't. Inquiries about your report for the purpose of establishing new credit can decrease your score a little bit, but inquiries to just get your score or a copy of your report never hurt your score. And even though inquiries for the purpose of establishing new credit reduce your score, they usually don't reduce it by very much.

Myth: Closing credit card or merchant accounts will help my credit score.

FACT: Closing accounts generally won't raise your score. People have heard,quite correctly, that sometimes having too many open accounts can hurt your score. That's true, but once you already have the open accounts it's too late. If you close accounts now then your ratio of outstanding debt to credit available will rise, which will hurt your score.

Now, if your lender asks you to close an account or two as a condition of getting the loan, then go ahead and do so. You're not doing so to raise your score, because it doesn't, you're doing so because your lender says that what it takes for you to get the loan. The reason they might do this is because they're afraid if you max out all your various cards you'll be spread too thin and won't be able to pay back the mortgage. So they may want you to close an account or two to reduce your ability to rack up more debt. But you should close accounts only if your lender says you need to do so in order to get the loan. If a mortgage broker suggests you do so, ignore them.

       Don't make any (more) late payments.  Make sure you pay every bill on time from here on out.  Taking steps to bring your score up does you no good if you do things that send it right back down.  Also, the older a late payment is on your credit report, the less it hurts you.  So a late payment you made last month hurts a lot right now, but in two years that same late payment won't hurt your score as much.  If you make no more late payments, your score could improve 50 points within a year.

        Pay off collections.  If you're very late in paying a bill (at least a couple months, usually longer), the creditor might sell your debt to a collection agency, who will then hound you for payment.  Any debt you owe to a collection agency rather than the original company is called a "collection".  If you have any collections, try to pay them off first, because they hurt your credit score the most.  That won't remove them from your credit report, but it will still help your score, because a late payment is not nearly as bad as an unpaid debt.  Tip: Many collection agencies will offer a discount if you agree to pay the balance in full while you're on the phone with them (via a bank transfer).

        Correct errors. If there are any errors on your report (such as late payments when you weren't late), write a letter to the CRA in question and ask that the error(s) be removed. The CRA has 30 days to investigate; they'll write to the creditor and ask them to verify the payment info.  If they don't, the CRA will remove the negative info from your file.

        Make sure negative info older than 7 years isn't reported. By law, negative information in your credit report must be deleted after seven years (10 years for bankruptcy). If your report contains negative info that's more than seven years old, write the CRA and ask them to remove it. Also note that if you missed a payment 8 years ago, but it took the creditor 2 years to report it to a collection agency, it will likely show up on your report as a 6-year-old debt.  In that case, write to the CRA and explain that the debt is really 8 years old and should be removed.  Include a copy of any paperwork that supports your claim.

        Add your side of the story.  If there is negative info in your report (such as non-payment of a debt), but you have a good reason for not paying the debt (merchandise not received, legitimate dispute with the merchant who would not negotiate in good faith, etc.), write to the CRA and ask them to add your short explanation about the matter to your file. If the lender pulls your credit report they might see the statement you added. They might not see it, because some lenders just look at the credit score and don't scrutinize the report itself too closely, but it couldn't hurt.

Paying down credit card debt

        Pay down credit card debt.  The more debt you're carrying, the lower your score.  Your debt is compared to the total credit available to you.  It's called your credit utilization ratio.  So $3000 of total debt with a $5000 total credit limit ($3000 ˜ $5000 = 60%) is worse than $3000 of debt with a $10,000 limit ($3000 ˜ $10,000 = 30%).  So pay down your debt to increase your score.  Go for at least <30%, but <10% is even better.  Surprisingly, 0% is worse than 1-9%: they want you to have some debt, just not a lot of it.

        Once I made a single $11,340 purchase on a card with a $12,000 credit limit. Even though my total credit available was about $188,000 on all my cards and I had only a few thousand dollars outstanding on my other cards, that one purchase near my credit limit on that card plunged my scored nearly 70 points from 825 to 757 in a single month. However, once I paid off that charge, my score zoomed right back up by 68 points the very next month.

The power of time

        Wait. Credit scores get better with time, just like wine.  The older a late payment is, the less it hurts you, and the older a credit card account is, the more it helps you.  If nothing else changes, your credit score will gradually creep up on its own.

Getting credit if you don't have any

        Get and use a credit card. In most cases you need to have (and use) at least one credit card in order to have a good credit score. If you don't have one, get one.  Just use it to buy your groceries, and pay it off in full every month.  Here's more on getting a credit card.

Ignore everything else

        Ignore most other advice you hear.  Myths about what actually helps or hurts your credit score would fill a book.  Some of them are listed in the sidebar above.  Some of them are even espoused by people whom you'd think would know better, like mortgage brokers.  But the list you're reading now is all you need to focus on.  Be skeptical of any other advice you may hear about how to improve your score.  If it sounds legitimate and you want to believe it then try to verify it first somehow, don't just accept it on faith.  Because taking bad advice might not just fail to improve your score, it could actually hurt it.  Really, just correct errors, get old negative items off your report, maintain a good payment history, keep your credit utilization low, and that's pretty much all you need to do.

        Don't pay for credit-rebuilding services. The tips in this section are everything you need to know about rebuilding your credit.  There isn't anything else.  Nobody can do anything more for you than what I've listed above.  Don't throw your money away on credit repair services.


Examples of credit score improvement

Here are some concrete examples of how various actions could affect your credit score.

How various actions affect a credit score
Action Change

Pay off all of a $2100 outstanding balance


Pay down 2/3 of a $2100 outstanding balance


Pay all bills on time for next 6 months


Consolidate balances onto a new card with a $5000 credit limit


Consolidate balances onto a new card with a $1000 to $3000 credit limit


Pay down 1/3 of a $2100 outstanding balance


Pay all bills on time for next 3 months


Pay a bill late

-25 to 60

Max out your credit (charge $11,000 to a card with a $12,000 limit)

-50 to 90

Declare bankruptcy

-120 to 170
Source: MyFico simulator, except I estimated the items about maxing out your credit
and opening a new credit card account from my own experience.

Note that another way to say "Pay all bills on time" is simply, "Wait."  Paying promptly is the same thing as doing nothing bad. If you're not doing anything to sabotage your report, then you're basically just biding time.  And as time passes, your credit score will go up.  A lot.


Should I wait for an item to expire off my report before I apply for a loan?

Late payments are removed from your credit report once they're over 7 years old.  Bankruptcies are removed after ten.  If it's only going to take a few months for a negative item to expire off your report, and you don't have a specific dream house in mind that you want to buy right now, then sure, go ahead and wait for the bad item to expire before applying for a loan, so you'll have a higher credit score and get a better interest rate.

But what if you have found your dream house that's on the market right now?  If you don't buy it now, someone else will probably buy it while you're waiting for your credit report to improve.  In this case, figure out how much extra you'll pay because of the higher interest rate, and see if you're willing to pay that premium in order to get your dream house.  And remember that once your score improves, you can always refinance at a better rate later on.

If it's going to take a couple of years for your credit score to improve, and you're able to get a loan now, you should probably do so rather than wait.  Yes, you'll pay more interest, but you'll start your investment in your house that much sooner, which will balance out the extra interest you'll pay.  And once your credit score improves, you can usually refinance at a lower rate (unless rates happen to go up in the meantime).

Other Resources

MyFICO offers a credit education center and some interesting credit statistics.


Where to now?

If you liked this site then you might like some of my other sites:

How to Find Cheap Airfare     How to Save Electricity     Slot machines demystified

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