Do-It-Yourself Credit Repair: Fix Bad Credit On Your Own In 6 Easy Steps

If you’ve had an overdue student loan, years of high credit card balances, collections accounts, or even a foreclosure, unfortunately, you probably have below-average or bad credit.

With poor credit, you may not be able to get approved for new credit products like credit cards. Although you may still be able to take out an auto loan or a mortgage, you’ll pay a much higher interest rate because of your low credit score. Compared to a borrower with good credit, someone with poor credit can pay $50,000 more in interest on a mortgage. Over an entire lifetime, you could end up paying over $200,000 more in unnecessary interest just because of bad credit.

The good news is—as you should know if you’ve read Money Under 30 for a while—that you can repair your credit score all on your own. It just requires a little bit of know-how and a good bit of patience. Here are six steps towards building better credit.

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1. Figure out where you stand

Before you begin do-it-yourself credit repair, you’ll want to get copies of your full credit reports from all three bureaus (Experian, TransUnion, and Equifax).

You can get your reports truly free, once a year, at www.annualcreditreport.com or by calling 1-877-322-8228. Other websites may claim to offer free reports, but the Federal Trade Commission (FTC) warns that these offers are often deceptive.

You can also try free credit score tracking apps like Credit Karma to get a sense of where you stand.

Credit scores range from 300 to 850. A score of between 700 and 740, depending on the scoring method used, is considered “good credit” and usually enough to qualify you for the best credit cards and lowest mortgage rates.

Related: How Credit Works: Understanding Your Report And Score

2. If you find errors, dispute them

The next step in credit repair is to dispute incorrect information on your credit report.

Errors aren’t common, but they happen. Of course, sometimes bad credit is just your fault. You shouldn’t try to argue accurate information, but if you do see errors-even small ones—it’s worth cleaning them up. Here’s how:

Once you have the copy of your full credit report in hand, check your identity information (Social Security number, spelling of your name and address), and credit history.

Review the list of credit cards, outstanding debts, and major purchases. If you see any mistakes or questionable items, make a copy of the report and highlight the error.

Next, gather any information that you have to back you up, such as bank account statements, and make copies of these as well. This is important! The credit bureaus won’t do anything without proof.

Write a letter to the specific credit reporting agency that shows the falsehood, whether it is Experian, Equifax, or TransUnion. Explain the mistake and include a copy of the highlighted report along with your documentation. Although certain bureaus now let you submit disputes online, it’s not a bad idea to send this letter by certified mail, and keep a copy for yourself. The reporting agency has 30 days from the receipt of your letter to respond. The Federal Trade Commission provides advice on contacting the credit bureaus about discrepancies. Here are the contact numbers and web sites for the three credit bureaus:

• Experian: 1-888-397-3742 – www.experian.com
• TransUnion: 1-800-916-8800 – www.transunion.com
• Equifax: 800-685-1111 – www.equifax.com

3. Stop the bleeding

Once you deal with any errors on your credit report, it’s time to ensure you’re not still spending more than you can afford each month.

Why is this so important? It’s because there are only three simple things to do to repair bad credit:

1. Pay all of your bills on time
2. Pay down debt (especially credit card debt)
3. Avoid applying for credit

But before you can do these things, you need to make sure you’re not spending more than you earn—you need a budget.

To start, review your tax returns for the past two years to get a sense of how much money you actually take home in a year.

Subtract your regular monthly expenses (rent or mortgage, car payments, and home, car and health insurance) from your current income.

Next, estimate your monthly spending habits for other expenses such as gas, groceries and entertainment. Create a limit, based on your income, of what you can spend in each of the different categories of expenses. For example, if you tend to spend $400 a month on groceries, try to stick to $300 a month on groceries by making changes like buying generic brands, using coupons, and resisting impulse purchases.