Having bad credit is, to put it mildly, a nightmare. Poor credit makes it difficult to get affordable loans (or any loans) and even a new apartment or job. When you’re in that situation, wiping your slate clean seems like a great solution.
Unfortunately, it’s also not possible. There’s no way to declare bankruptcy and reset your credit score for good, but that doesn’t mean you’re stuck with bad credit forever.
Can I start a new credit report?
The short answer is no, there’s no way to restart, reset or clear your credit report.
The purpose of the credit reporting system is to help lenders make informed decisions about potential borrowers. As such, poor credit borrowers restarting their credit anytime would negate the system.
However, that doesn’t stop credit score restoration scammers from trying. Any company that claims to create new credit reports, files or numbers is engaging in fraud and should be reported to the Federal Trade Commission (FTC) immediately.
Will declaring bankruptcy reset my credit score?
Declaring bankruptcy provides a financial do-over for people who get into debt over their heads. That said, it’s not consequence-free — and it won’t start a new credit file.
On top of likely selling possessions or spending time paying off your debts, bankruptcies sit on your credit report for seven to 10 years. During this time, they tank your credit score and make it difficult to get approved for new loans or credit cards.
Can credit repair companies reset my credit score?
No, credit repair companies can’t reset your credit score or start a new credit file legally, either.
Credit score restoration services work by contacting credit bureaus and objecting to negative marks in your report. They may also contact creditors to double-check the accuracy of their reports. If a bureau finds that a negative mark isn’t accurate, they’ll remove it, and your score may rise.
However, you can do this yourself for free by taking a few minutes to write a letter or fill out a form online. The Federal Trade Commission notes that credit repair companies can’t legally do anything you can’t do for free.
Best ways to repair credit
Repairing a low credit score isn’t always quick, but it’s more than possible. Here’s where to start.
Make payments on time
Your payment history comprises a whopping one-third of your total credit score. If you have bad credit, you can start repairing it by making your payments on time. But don’t expect your score to rise in a hurry — it may take a few months of on-time payments.
Keep balances low
Your credit utilization ratio measures the credit you use versus how much you have available. Keeping your utilization low compared to your limit shows creditors you can handle debt responsibly and reflects well in your credit score.
Pay down existing debt
Even if you can’t wipe your existing credit history clean, you can prevent future damage by building good habits now. Start by paying down existing debts to establish a history of on-time payments and lower your credit use. Plus, if you’ve missed a few payments, getting current shows creditors that you intend to become a model credit user.
Check your credit report for errors
Under the Fair Credit Reporting Act, you have the right to dispute and remove inaccurate information from your credit report. Start by requesting a copy of your three credit reports for free at annualcreditreport.com. If you find any errors, you can dispute them for free with the bureau in question.
Don’t close old credit accounts
Closing old credit accounts doesn’t eliminate your past, but it does lower the age of your credit score. In turn, this can lower your credit score and make recovering more difficult. Instead of closing old accounts, keep them open to increase your available credit. To prevent your credit from closing them for nonuse, make a small purchase each month and repay it immediately.
Refrain from opening too many new accounts
When you apply for new credit, the lender may pull a hard credit check on your report. These checks temporarily lower your score and stick on your report for about two years.
While the impact of a single check is minimal, a flood of applications adds up quickly. Plus, applying for too much credit shows that you’re desperate for debt, which is a red flag for lenders.
Stick to a budget to avoid overspending
One of the best ways to avoid damaging your credit is to stick to a budget and live within your means. Doing so ensures you don’t need to apply for unnecessary debt that just bites you in the credit score later. Plus, long term, you’ll save thousands in potential interest payments and fees.
How long will it take to restore my credit score?
According to FICO, fixing your credit score can take months or years, depending on where you start and why it’s low. For instance, one missed payment can take anywhere from six months to three years to recover from. But bankruptcy can drag your score down for five to 10 years.
But that doesn’t mean you shouldn’t start your credit score restoration journey now. The earlier you build good habits, the more successful you’ll be long term.
You can’t reset a credit score but you can reset your habits
Bad credit doesn’t have to be a lifelong sentence. While you can’t restart your credit score or cleanse your file, you can improve your score with time and dedication. In a few years, your credit score could look good as new.
FAQ
How can I reset my credit score?
There’s no way to reset your credit score completely. What you can do is build positive credit habits to reestablish a good score over time.
Can I start a new credit file legally?
There’s no way to start a new credit file. Companies that claim to sell new credit files or new credit numbers do so illegally.
Can I pay a company to fix my credit?
Credit score restoration and repair companies do exist. However, the FTC notes that they can’t do anything to boost your score that you can’t do yourself for free.
Written by Anna Yen Anna Yen, CFA, has nearly 2 decades of experience in financial markets, primarily with JPMorgan and UBS. Currently, she manages digital assets and her goal at FamilyFI is to empower families with financial literacy. She’s worked in 5 countries and visited 57.
