8 Mistakes to Avoid When Trying to Improve Bad Credit

If you’ve had enough of being embarrassed about your poor credit and are ready to work on improving your credit score, good for you. Even if it seems difficult or nearly impossible to bring your score up at this point, the passage of time – along with positive steps you can take right now – are on your side when it comes to raising your credit score.

At the same time, it’s crucial to avoid common mistakes that can hold you back when trying to improve your credit so you can get loans, better credit cards and lower interest rates.

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1. Not reviewing your credit report

Before you can improve your credit score, you need to know the factors on your credit report that are dragging down your score. For example there could be errors on the report that you can correct to improve your credit score.

You can get a free copy of your credit report at AnnualCreditReport.com. You can also get one free copy a year from each of the three major credit bureaus Experian, TransUnion and Equifax.

Find out: 7 Ways Fixing Bad Credit Can Change Your Life for the Better

2. Falling for a credit repair scam

If a for-profit company tells you that it can remove negative information from your credit report for a fee, don’t sign up for its services. “The truth is that no company can legally erase information from your file if it’s accurate,” according to major credit bureau Experian.

Credit repair scammers are eager to prey on desperate people, but you can remove errors yourself for free by contacting the creditors who reported the inaccurate information.

Find out: What Do Credit Repair Companies Do?

3. Failing to dispute credit card errors

When you see errors on your credit report, always contact the creditor in writing to have the inaccuracy removed from the report. Not much of a letter writer? Then use this sample credit report dispute letter to compose your own dispute letter.

Find out: What’s the Best Way to Fix a Big Fat Mistake on Your Credit Report?

4. Maintaining high credit card balances

Did you know that your credit utilization ratio – the percentage of revolving credit debt to your available credit –accounts for around 30% of your credit score? A high credit utilization rate lowers your credit score while a lower credit utilization rate typically raises the score.

Ideally, it’s wise to keep your credit utilization rate at no more than 30%. So, if you are running balances on one or more credit cards, pay as much as possible on them to get those balances down or paid off.

Find out: How to Build Credit in 5 Simple Steps Using Today’s Tech

5. Making late payments

Another major factor in your credit score calculation is payment history, which accounts for around 35% of your credit score. To improve your credit score, build a positive payment history by making all credit card and loan payments on time.

But what about those old accounts that have been dogging you for the last five years? The good news is that negative payment history on a credit account automatically drops off your credit report after seven years, so the passage of time – in conjunction with making timely payments on current accounts – can raise your credit score significantly.

Find out: Don’t Make These 6 Mistakes When Paying Off Debt

6. Making a payment on an ancient debt

One of the worst things you can do while trying to improve your credit is make a payment on a “time-barred” debt that falls outside your state statute of limitations. Making a payment can restart that debt, keeping that negative payment history on your credit report for years longer than if you hadn’t made a payment.

Statute of limitation laws on debt vary by state and average three to six years, according to the Federal Trade Commission (FTC). To find your state statute of limitations, contact your state attorney general’s office.

Find out: 7 Mistakes That Can Bring Old Debt Back to Life

7. Closing positive credit accounts

If you have a history of charging too much on credit cards, it may seem like a good idea to close credit card accounts to resist temptation, but it’s usually better to keep paid off accounts open, according to Experian.

For one thing, paid off credit card accounts help your credit utilization rate. Older positive account history on your credit report also works in your favor.

Find out: How and When Should You Cancel a Credit Card

8. Submitting too many credit applications

As your credit score improves, you may be eager to find out what creditors think of your score, but applying for a new credit card every week isn’t a good way to monitor creditworthiness. In fact, too many “hard inquiries” from creditors in a short period can lower your credit score.