How to fix your credit

Here's one for your vision board. An expense comes up in your life, and you need a loan (or a car, or a credit card—whatever the situation calls for). You apply. Not only are you approved, your credit qualifies you for the lender's best deal.

If this isn't your reality right now, it could be. The factors that affect your credit profile are within your control, and getting your credit where you want it isn't as complicated as you might have thought. The keys to a strong credit profile are error-free credit reports, on-time payments, and low credit card balances.

Achieve is not a Credit Repair Organization and does not provide, or offer, services or advice to repair, modify, or improve your credit.

Step 1: Learn what credit scores are made of

Before you can fix your credit, you need to know what's keeping your score from being as high as it could be. That means understanding how your scores are calculated.

FICO Score and VantageScore are the two main credit scoring models. Lenders choose which score type they use, and they might use different cutoffs for what counts as good credit.

FICO looks at five factors:

• Payment history: Whether you make your payments on time. On-time payments help your score, and late or missed payments hurt.

• Amounts owed: The amount you owe, especially compared to your credit limits (known as your credit utilization ratio), plays a big role in your credit score. Using less is best. Maxing out credit cards typically hurts your credit.

• Credit age: How many years your accounts have been on your credit reports. Longer is better.

• Credit mix: The kinds of debts you have experience with. For instance, a personal loan is an installment loan, and a credit card is a revolving (open-ended) debt.

• New credit: This category includes recent applications. Hard credit checks show up when you apply for credit. This typically causes a small, temporary dip in your score.

VantageScore looks at factors such as payment history, credit utilization, balances, and recent credit.

Pro tip: Payment history and credit utilization are the factors that could help or hurt your score the most. If your credit score is lower than you'd like, focus on improving these two factors first.

Step 2: Get your credit reports

Credit scores are based on the information about your accounts that lenders report to the credit bureaus. The credit bureaus then put this information together into a credit report.

Experian, Equifax, and TransUnion are the three major credit bureaus that compile credit reports. You can get a copy of your credit report from each credit bureau for free every week through AnnualCreditReport.com.

If you haven't checked your credit reports lately, now is a good time to get your hands on them.

Look over your credit reports. Then move on to step 3.

Step 3: Get errors corrected

In a 2012 Federal Trade Commission (FTC) study, about one in five people had an error on at least one of their credit reports. Some errors are harmless, but others could affect your score. It's a good idea to correct all errors since your credit report could make or break your ability to get the financing you need in the future.

Common credit reporting errors include:

• Incorrectly reported payment history

• Incorrectly reported credit limits

• Closed accounts still reported as open, or open accounts reported as closed

• Accounts listed that don't belong to you

• Charge-offs or delinquencies reported in error

• Errors related to identity theft

• Incorrect name variations or spellings

• Incorrect current address or past addresses

If any information on your credit reports looks wrong, you have the right to dispute errors with the credit bureau reporting them. Each credit bureau has its own policies for disputing credit report errors, and the process usually starts by clicking a button while viewing your report online. You can also file a dispute by mail or over the phone.

If the credit bureau investigates and finds that an error exists, they're required to remove it or correct it. The credit bureau generally has 30 days to investigate, or up to 45 days if you send more relevant information during that time. Send copies of any documents that support your dispute, and keep a record of everything you send.

You can't dispute away accurate negative information, like a late payment that really happened. Credit bureaus can generally list negative information on your credit report for seven years. After that, they’ll remove it. If they don’t, you can ask them to.

Step 4: Learn what factors are most influencing your score

Knowing what affects credit scores in general is a good thing—the more you know about credit, the smarter you can be about using it. But it's also important to know what's specifically affecting you.

This is where it might help to sign up for a free credit monitoring service. Credit monitoring services scan credit reports and alert you to changes that might change your scores. These services usually offer tools and insight into what factors affect your scores. That can give you a starting point for knowing what to work on first.

Step 5: Set up automatic payments or reminders

Payment history is the most important factor in FICO credit scoring. If you don't want to get dinged for a late or missed payment, scheduling automatic payments is a safety net you can put in place.

You can set up automatic payments through the companies you pay or through your online banking or mobile banking app. If you can't do automatic payments because your paychecks are irregular, or you'd rather schedule them yourself, set up reminders or alerts instead.

Step 6: Prioritize your debts

After payment history, the balances you carry on your credit cards have the biggest impact on your score. Bringing those balances down is part of building a healthy credit profile. Easier said than done, we know.

Paying off debt works best when you have a realistic plan and a budget you're committed to.

There are different ways to approach paying off debt, including the debt snowball method and the debt avalanche. Choose a debt repayment plan, look at your budget, and maximize the amount you pay your creditors every month. You'll probably have to make some sacrifices. It helps to visualize how great you'll feel when you reach debt milestones. The immense satisfaction is in addition to any improvement that happens in your credit score.

If you are overwhelmed by debt, dealing with it takes priority over working on your credit score. That’s because healthier credit is a natural consequence of improving your debt situation. By focusing on your debt, you're taking the first step to better credit.

Step 7: Be proactive

Don't ignore your credit score or hope it'll get better on its own. A proactive approach can help you feel in control of your situation and produce positive results.

Here are a few simple hacks for tackling credit challenges head-on.

• If you pay late, call the creditor right away. They might cut you a break and report the payment to the credit bureaus as on-time, or remove a late payment that's already on your credit reports.

• If you can't pay this month, ask for help. If you have a temporary hardship, your creditor might agree to let you skip a payment.

• Build your own guardrails. If you find yourself going in and out of credit card debt often, it might be a good idea to close some accounts. Think about ways to create accountability.

• Be willing to work to repair the damage. Credit repair companies often promise a quick fix for improving bad credit, but they can't do anything you can't do if you're willing to learn how (and it's not hard).

What credit repair companies can and can't do

Anything a credit repair company can do legally, you can do yourself for little or no cost. Under federal law, credit repair companies:

• Can't charge you before they've finished the work they promised.

• Must give you a written contract that includes a three-day right to cancel without charge.

• Can't legally remove negative information that's correct and up to date.

Achieve is not a Credit Repair Organization and does not provide, or offer, services or advice to repair, modify, or improve your credit.

Step 8: Protect yourself from identity theft

Freeze your credit reports to reduce the chance of financial fraud against you. When you freeze your credit, it blocks creditors from checking your credit. That makes it difficult or impossible for someone to open a new credit account in your name without your permission.

Freeze your credit reports online or over the phone through all three major credit bureaus. There's no fee. You can log in and unfreeze your file if you want to apply for credit. It only takes a moment. You have to place a freeze with each credit bureau separately.

Step 9: Get back on the horse if you fall off

No one's perfect, and your journey to improve your credit might hit the occasional bump. When that happens, forgive yourself—and don't give up. Figure out what you can do differently, and keep going.

Credit fixes can take time, depending on what you're working with. The payoff can be enormous if you stick with it. Good credit lowers the cost of borrowing money, and ultimately, that means more cash in your pocket.

What's next

• Get copies of your credit reports from all three bureaus and review them for errors. If you notice any, dispute them.

• Set up automatic payments or reminders for all the bills you pay. Paying on time is one of the best things you can do for your credit health.

• Consider freezing your credit files. There is peace of mind in knowing that your file is locked down and under your control.

• Sign up for a free credit monitoring service and enroll in alerts so you know when your credit score changes.