Repairing Your Credit History—A Step-by-Step Process

March 2014 View more


Unless you’re extremely fortunate, chances are you’ve experienced a financial crisis that has dinged your credit rating. You can turn a nasty credit history around and increase your FICO scores—the measurement of your credit risk. However, be assured, it is a gradual process.

Anthony Sprauve, FICO spokesman, says there are ways to improve your score. “Achieving a solid FICO score requires three things: Pay every bill on time, every time. Keep credit card balances low—typically under 30 percent of your available credit. And only open new credit when necessary,” Doing this will lead to a strong score and access to credit at the lowest available interest rates.

Steps To Improve Your Credit History

So, you lost your job and had to do some financial juggling? Now you’re working again and want to start repairing your credit. First, get a copy of your credit reports from each of the three major bureau’s—Experian, TransUnion and Equifax. Each have their own models to determine creditworthiness. You’re entitled to one free credit report from each bureau per year. Reports contain account information, date of account opening, credit limit, amount of loan, payment terms, balance and monthly payment history.

Most negative information sticks to credit reports for seven years, except Chapter 7 bankruptcies (10 years) and unpaid tax liens (15 years). Fortunately, good credit information can remain indefinitely. If entries on credit reports are wrong, dispute findings with each credit bureau:

You’ll also need baseline FICO scores to chart your upward progress. This will cost roughly $20 for each bureau report from However, if you’re a cardholder of Discover’s “it” card, the Barclay’s Rewards MasterCard, or Arrival World MasterCard, your FICO score is conveniently printed on your monthly statement.

Remember, the repair process is a series of baby steps. Small changes in your score are important if you’re looking to obtain a certain FICO score level or trying to reach a certain lender’s FICO score cutoff—the point at which a lender will or will not accept a new application for credit.

Credit Repair Strategy

Having a few revolving accounts where you responsibly charge and pay off every month is one way to exhibit financial responsibility and increase scores over time. In this electronic world, it’s silly not to set up auto monthly minimum payments. Lower your balances again by paying down the cards with the highest interest rates first. Also, if you have accounts you seldom use, experts recommend that you occasionally charge something manageable and pay it off as soon as possible.

Experts often advise against closing accounts, especially older ones, because of the potential effect on your credit scores, but that’s not an absolute. It pays to read about canceling cards at

Also know that applying for a major loan when your credit scores are not up to snuff could negatively impact your credit score. These hard inquiries become part of your credit record for two years and can affect lending decisions. FICO scores distinguish between single-loan searches and searches for many new credit lines based on the length of time over which inquiries occur. However, there’s absolutely no harm in requesting copies of your own credit reports—soft inquiries—as often as you’d like to gauge success of your credit repair strategy.

Finally, while high FICO scores are important, they don’t account for your salary. Debt-to-income ratio, calculated by adding monthly payments for all debts and dividing by monthly gross income, will be part of the decision-making process. Generally, your ratio should be less than 35 percent including your monthly mortgage payment, and 20 percent or less if excluding the mortgage.