In North America, having a good credit score is more important than having a huge income, a college degree, or a great savings account. Banks, money lenders, car dealers, employers, and landlords now check credit scores to determine your eligibility to get a loan, a job, and even a roof over your head!

If you're worried about your debt and your credit score, you're not alone. According to data from the Federal Reserve Bank of New York and the Census Bureau, American households have an average unpaid credit debt of $16,061 in addition to other loans that are destroying their credit scores and their ability to get financing for essentials like a car and a home. At the same time, many people still don't understand how credit scores work, and young people are hit particularly hard thanks to massive student debt and a bad start to building their credit.

Here are some dismal highlights from America's credit landscape:

  • Millennials have lower credit scores than other generations
  • 36% of the people believe they don't need to check their credit scores at all
  • 54% of adults believe that their credit scores are listed on their credit reports
  • only 41% people understand that a credit score measures your risk of not repaying a loan
  • many people still don't understand that having a good credit score is the number one factor determining their eligibility to get a loan, a job, and even a roof over their heads

What's important to realize is that this credit debt and epidemic of misinformation is not entirely our fault. Regardless of how much damage happened in the most recent financial meltdown, lenders keep giving people who have lower credit scores access to new credit cards. Naturally, this drives people who already have unpaid debt deeper into the debt cycle.

Yet despite this grim reality, there is hope:

No matter how bad your score might be right now, you can raise it and get your finances back on track.

The average credit score in America is now at its highest ever recorded as of 2017 because people are putting in the work to fix their scores, and they're succeeding. Raising your credit score isn't rocket science! All it takes is making a few calls and making the commitment to pay off your debts, one day at a time.

Are you ready to get your hands dirty and fix your credit score for good? We're here to tell you how to do it.

But first, let's clear up what a credit score actually is.

How Your Credit Score Works

Credit scores sit on a scale between 300 and 850. Each lender has its own standard of what a "good" credit score is, but a general guide is this:

300-629: Bad credit 630-689: Fair or "average" credit 690-719: Good credit 720 and up: Excellent credit

There are three major credit reporting agencies in North America: TransUnion, Experian, and Equifax. Each company uses a slightly different methodology to determine credit scores. You want good scores from all three credit agencies to maximize your chances of getting a loan from the bank or car dealership. Each company prepares its own reports, so you'll need to call all three to get access to your scores.

How to Fix Your Credit Score

1. Review Your Credit History

Credit Report
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Go through your credit report to see if there is any outdated or missing information

Credit reports often contain errors that can mess with your score, and keeping track of your credit scores allows you to make sure no new errors appear as you begin to fix your scores and repay your debts. So, reviewing your history is the first and possibly most important step to fixing your credit.

One way to review your history and get on the right track is to sign up for Credit Karma, a debt management service that offers credit reports, credit trackers, and advanced reporting on your credit history. They offer a monitoring service to help you minimize the risk of fraud and errors on your account. You can sign up for free, and it's now offered in Canada as well as the U.S. If you sign up for Credit Karma for a free credit report, you've already completed the first step to repairing your bad credit score!

Once you get your full credit report, go through it line by line to see if there is any outdated or missing information and make a note of it. Incorrect information may include loans that you already paid off, incorrect information about how many times your credit was checked (having a lot of credit checks by lenders lowers your score), or anything else that doesn't look right. Keep in mind that there are people maintaining your information, and people make mistakes. Once you've done this, also make a list of your accounts and which ones are late, delinquent, or in collections.

Once you gather this information, it's time to go on the offensive. Take this information and call all of the companies on your credit report and dispute every mistake. Ask for proof of any charges that are incorrect. It's common to find that credit reporting companies can't actually provide documentation or proof that the charges were valid! Unproven credit lines should drop off your report completely once you give notice that they are wrong. Depending on your home country/state, there are also consumer credit protection laws in place to force these companies to help you correct any mistakes or fraud. Hit Google to find your local laws and use them to your advantage.

We can't understate how important this step is to repairing your credit score, so get it done as soon as you can!

2. Fix the Paper Trail

Woman reading a paper document as she sits at a table
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The next step to raising your credit score is to call in the professionals

The next step to raising your credit score is to call in the professionals. This is less important if you only find a few errors on your credit report or if you manage to get all the errors removed. But if you have a deck of credit cards and you've run up significant credit debt, then you might be better off hiring a legal service to track down documentation on your behalf, so you can dispute all the errors efficiently and completely. Many creditors fail to keep proper records about their debts, especially in countries/states with strong protections for consumers. This means your attorney will be able to weed out the debts without good supporting documentation on file with the creditor.

After contacting the credit companies, you'll have to wait about a month to see the effect on your score. You might be surprised to see the magnitude of the change in your score just from fixing these errors! Seeing progress at this stage can act as huge inspiration to keep up the effort to improve your credit score.

3. Get a Secured Credit Card

Credit card close-up
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Banks are usually more than happy to give you a secured card, which is essentially training wheels for credit

Banks are reluctant to give you a new credit card if your credit score is low, but they are usually more than happy to give you a secured card, which is essentially training wheels for credit. A secured card works like this: you make a deposit (let's say $500) and the bank holds that money as collateral. Your new card then has a limit of $500. You use this card like a regular credit card for a few months, making sure to pay off the card fully every month.

In effect, you're rebuilding your credit score by proving to your bank that you are trustworthy and that you repay your debts. After a few months (one bank offers this deal after 8 months), if the bank is satisfied with your repayment performance, they'll give you back the $500 collateral and give you a new regular credit card! This tactic will build your credit quickly and help you drive up your credit score at the same time.

4. Settle Your Credit Debt

Working Out Bill Payments
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The next step to fixing your credit score is to pay off your credit card debt

It's important to remember that the reason why credit reports get so bad in the first place is because people use too much credit and don't pay enough of it off regularly. If you haven't done so yet, then the next and most important step to fixing your credit score is to pay off your credit debt.

Sit down with your new, accurate, and up-to-date credit report and start calling the companies with delinquent or collection items in your file. Ask to speak to a credit representative, and follow this script: “I don't have enough money right now to pay in full, but I'll give you X to settle it right now.” Many creditors with “impaired debt” (aka “delinquent debt” or “in collections”) are happy to take 50% of the amount you owe. The alternative for them is usually zero repayment, so 50% repayment is definitely a better choice.

When you start paying off your credit card debt, you're lowering your credit utilization. Credit utilization refers to how much of your available credit you're using. For example, if you have a $1,000 limit on a card and you have an unpaid debt of $800 that keeps rolling over to the next month, you're at 80% credit utilization (800÷1000 = 0.8 x 100 = 80%). Credit reporting agencies penalize high credit utilization and it lowers your credit score. The more you cut down your debt, the lower your credit utilization will be, and the higher your credit score! Keeping your credit utilization at 30% or below in the long term is essential to keeping your credit score high. So, once you've paid off your debt, be sure to avoid using more than 30% of your available credit in the future.

If you haven't done so yet, sit down and make a budget, including an (aggressive) repayment schedule. It's worth paying your debts quickly because you'll improve your credit score faster AND you'll have to pay less interest on your debt every month.

Let's recap. To fix your credit score, you need to:

  • Take the time to fix the errors on your credit report
  • start rebuilding your credit with a secured credit card
  • keep your credit utilization low, and
  • steadily repay your debts

That's it! A few calls and creating a new payment plan is all you need to fix your credit score. No one expects you to pay off all your debt immediately. The important thing is to get organized and start repaying your debt, and your credit score will immediately begin to go up. Getting serious about fixing your credit score can have a profound change on your life and on your outlook for the future.

Where to Go From Here

An amazing thing happens when you fix your credit score. You've managed to prove to lenders and banks that you are trustworthy and that you repay your debts — and you can start to dream big and make plans again.

If you've been wanting to expand your business or start a new one, you'll be more easily able to get the financing you need. With your newfound budgeting skills, you'll also be in a great place to put money aside for a vacation, or to save up to buy a house or start saving for retirement.

You can put money into other investments, like company stocks, and watch your money grow along with those firms' exciting technological and business advances. Dreaming big is where it's at: once you've cleaned your slate, you can focus on moving up and creating wealth for you and your family.

Success has a funny way of breeding more success. When you've put in all this work to raise your credit score, you won't want it to go down. You might find yourself checking your score often to make sure it's still looking good — and it's a great idea to do this 3 or 4 times a year, because your efforts to keep your credit score healthy build better results over time. And by continuing to use a credit tracking service to monitor your score with a few clicks of the mouse, you'll be able to focus on keeping your mind on your money, where it belongs!

Do you know someone who could use some help to raise their credit score? Share this article and help them fix their credit problems fast!