January 13, 2017

Repairing your credit is not usually about one quick fix. It is about understanding what affects your credit score, correcting inaccurate information, improving payment habits, lowering revolving balances, and avoiding decisions that create new credit problems.

For borrowers, real estate investors, and property owners, credit can affect financing options, interest rates, loan approvals, refinance opportunities, and overall financial flexibility.

This article explains the main factors that affect your credit and practical steps you can take to begin improving it.

5 Main Factors That Affect Your Credit

Credit scoring models can vary, but FICO identifies five primary categories that affect a credit score: payment history, amounts owed, length of credit history, new credit, and credit mix.

Payment History

Payment history is generally the most important factor in your credit score. Missed payments, late payments, collections, charge-offs, bankruptcies, and other negative payment events can significantly damage your credit.

The most important habit is simple: pay every account on time going forward. If you are already behind, communicate with the creditor and try to resolve the account before the problem becomes worse.

Credit Utilization / Amounts Owed

Credit utilization refers to how much revolving credit you are using compared to your available credit limits. This is one of the fastest areas where some borrowers may be able to improve their credit profile.

For example, if you have a credit card with a $1,000 limit and a $500 balance, you are using 50% of the available credit on that card. If you pay the balance down to $100, your utilization drops to 10%.

Lower utilization is generally better. Many borrowers try to keep revolving balances below 30% of available limits, and lower may be better depending on the credit profile.

Keep in mind that credit card companies usually report balances to the credit bureaus on a specific reporting date. Paying a card down after the reporting date may not immediately show on your credit report.

Length of Credit History

The age of your credit history also matters. Older accounts can help show a longer track record of managing credit.

This is one reason to be careful before closing old accounts, especially if they have no annual fee and are in good standing. Closing old accounts may reduce your available credit and can affect the average age of your accounts.

New Credit

Opening too many new accounts in a short period of time can hurt your credit profile. New credit applications may create hard inquiries, and a pattern of frequent applications can make a borrower look riskier.

Be selective. Opening a department store card or retail credit card just to get a small discount is usually not worth it if you are trying to improve or protect your credit.

Credit Mix

Credit mix refers to the types of credit accounts in your profile. Credit scoring models may consider whether you have experience managing different types of credit, such as credit cards, auto loans, student loans, mortgages, or other installment accounts.

This does not mean you should open unnecessary debt just to create a mix. It simply means that a well-managed history across different account types may help your overall credit profile.

How to Repair Your Credit: Step-by-Step

Step 1: Review Your Credit Reports

Start by reviewing your credit reports from Equifax, Experian, and TransUnion.

The official website for free credit reports is AnnualCreditReport.com. Free weekly online credit reports are available from the three major credit bureaus through AnnualCreditReport.com.

When reviewing your reports, look for:

• Accounts that do not belong to you
• Incorrect late payments
• Duplicate collection accounts
• Incorrect balances
• Incorrect account status
• Old negative items that should no longer be reporting
• Signs of identity theft or fraud

Step 2: Dispute Inaccurate Information

If you find inaccurate information, dispute it with the credit bureau reporting the error. You can also contact the creditor or furnisher that reported the information.

Focus on information that is wrong, outdated, duplicated, incomplete, or does not belong to you.

Avoid filing disputes that you know are false or frivolous. The goal is to correct inaccurate credit reporting, not to create unnecessary disputes that may be rejected or ignored.

Step 3: Pay Bills on Time Going Forward

Payment history is the largest credit score factor, so the most important long-term step is to pay every account on time.

Set reminders, use autopay where appropriate, and keep enough liquidity available to avoid accidental late payments.

If you recently had a single late payment on an otherwise good account, you may consider contacting the creditor and asking whether they will remove the late payment as a courtesy. They may say no, but it can be worth asking.

Step 4: Pay Down Revolving Balances

Paying down credit card balances can be one of the more practical ways to improve a credit profile, especially when utilization is high.

As a general rule, try to keep revolving debt well below the available credit limit. If possible, pay balances before the card issuer reports to the credit bureaus.

If you are in the process of obtaining a mortgage or another time-sensitive loan, ask your lender whether a rapid rescore is available after balances are paid down or errors are corrected.

Step 5: Handle Collections Carefully

If you have collection accounts, review them carefully before paying.

Confirm that the debt is yours, the balance is accurate, and the collection company has the right to collect. If the account is valid and you can resolve it, consider negotiating the payoff terms in writing before sending payment.

In some cases, you may ask whether the collector is willing to delete the collection account after payment. This is often called a “pay for delete” request. Not every collector will agree, and not every credit reporting policy allows it, but it may be worth asking before payment.

Even when deletion is not available, resolving an unpaid collection may still be better than leaving the account outstanding, depending on your situation and your financing goals.

Step 6: Negotiate Payoffs When Necessary

If you have large collection accounts or charged-off balances, paying the full amount may not be realistic. In those cases, you may be able to negotiate a settlement for less than the full balance.

Before agreeing, ask for the settlement terms in writing. Confirm the amount, due date, account number, and how the account will be reported after payment.

A settled account may not be as favorable as an account paid in full, but resolving an outstanding collection or charged-off balance may still be better than allowing it to remain unpaid.

Step 7: Avoid Unnecessary New Credit

While repairing your credit, avoid opening new accounts unless there is a clear reason to do so.

New applications can create hard inquiries. New accounts can also reduce the average age of your credit history. If you are planning to apply for a mortgage, refinance, or other major financing, be especially careful with new credit activity.

What Not to Expect

Credit repair is not magic. No one can guarantee a specific score increase, and legitimate negative information may remain on your credit report for a period of time.

Be cautious with companies that promise unrealistic results, guaranteed score increases, or immediate removal of accurate negative information.

The most reliable approach is to correct inaccuracies, pay accounts on time, lower utilization, resolve legitimate negative accounts where appropriate, and avoid new credit mistakes.

Why Credit Matters for Borrowers

Credit is not the only factor in a lending decision, but it can matter.

In real estate lending, a lender may also review the property, borrower equity, use of funds, liquidity, title, exit strategy, and overall loan structure. For business-purpose private lending, the collateral and exit strategy may be central to the decision, but borrower credit can still help explain payment history, financial discipline, and refinance options.

For definitions of common lending terms such as LTV, lien position, exit strategy, interest reserve, deed of trust, and promissory note, borrowers can review our Private Lending & Mortgage Glossary.

At FK Capital Fund Inc., we provide business-purpose private lending solutions throughout California, including bridge loans, hard money construction loans, rehab loans, and select real estate-secured financing scenarios. General loan parameters can also be reviewed on our Hard Money Loan Programs page.

Each loan request is reviewed based on the specific facts of the transaction. Examples of prior real estate-secured lending activity can be reviewed on our Featured Transactions page.

Final Thought

If you want to repair your credit, start with the basics: review your credit reports, dispute inaccurate information, pay every account on time, reduce revolving balances, address collections carefully, and avoid unnecessary new credit.

These steps are not guaranteed to produce a specific result, but they can help create a cleaner and stronger credit profile over time.

If you have a California business-purpose real estate financing scenario, FK Capital Fund can review the loan request based on the property, borrower, structure, and exit strategy.

Submit your loan scenario for review.

For general questions, you can also contact FK Capital Fund here.

Frequently Asked Questions

How do I repair my credit?

Start by reviewing your credit reports, disputing inaccurate information, paying bills on time, lowering credit card balances, resolving collections where appropriate, and avoiding unnecessary new credit applications.

What affects my credit score the most?

Payment history and amounts owed are generally the two largest FICO score categories. Payment history accounts for 35% and amounts owed accounts for 30% of a FICO Score.

Can paying down credit cards improve my credit?

Paying down credit cards may help if your credit utilization is high. Credit utilization compares your revolving balances to your credit limits, and lower utilization is generally better.

Should I dispute negative items on my credit report?

You should dispute information that is inaccurate, incomplete, outdated, duplicated, or does not belong to you. You should not file disputes that you know are false or frivolous.

Where can I get my free credit reports?

You can request free online credit reports from Equifax, Experian, and TransUnion through AnnualCreditReport.com. The FTC also identifies AnnualCreditReport.com as the authorized website for free credit reports.