Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jan 10, 2013

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The simple mention of a credit score can strike terror into the hearts of millions of people around the country; especially when it comes to personal loan applications. While it is perfectly understandable that people with bad credit would want to stick their heads in the sand and forget their problem, they are making one mistake. They fail to understand that every problem has an answer; the answer to bad credit is to improve your score.

While borrowers may think that they have to beg a bank officer or lender to improve their scores, the truth is that consumers have the ability to improve it on their own. Here is a list of the top five ways that borrowers and consumers can improve their own score.

1. Pay your bills on time

If you’re looking to improve a bad score but fail to pay bills on time, then you will only end up with a worse one. It’s akin to wanting to put out a house fire but instead of throwing water on the flame, you begin lighting tiny matches from a matchbook. A credit report monitors how many late payments a borrower has made. So ending a string of late payments by beginning to pay bills on time is an excellent change that will lead to an improved score. In fact, payment history accounts for a whopping 35 percent of an individual’s FICO score.

2. Pay down your debt

This should be a no-brainer. Paying off debt shows that a borrower can manage their finances. This shows future lenders that a person can be trusted to repay money they borrow. A person who borrows a personal loan and never repays it is only asking to be denied for future financing. Once credit reporting agencies catch wind of this failure to repay, they will drop down the borrower’s score.

On top of making it hard to borrow money in the future, a low credit score can make it difficult to obtain a job or get an apartment.

Paying down debt also grants the added benefit of saving a person money in the long run. The less debt a person has, the less interest that owed money is accruing.

3. Stop borrowing

This goes hand in hand with paying down debt. Not only does borrowing more personal loans expose a borrower to overspending and default, but a borrower’s score can actually be damaged by simply applying to multiple lenders in a short period of time.

For example, if a prospective borrower needs more money and applies for multiple personal loans from different lenders within the same month, reporting agencies will view that person with suspicion for wanting to obtain so much financing in such a short period of time. In their eyes, this borrower is a risky person to lend to, and an updated report will reflect that evaluation. So borrowers hoping to obtain a lot of financing in a short period of time should step on the brakes and instead opt for focusing on repaying their outstanding balances first.

4. Consolidate that debt

Borrowers with multiple lines of debt should look into consolidation. Through consolidation, all outstanding personal loans are replaced with a single consolidation loan that has its own interest rate and terms. In essence it replaces multiple bills, payment due dates, and interest rates, with a single one.

This can be especially useful to a borrower that juggles hordes of personal loans and lines of credit. With only one loan to worry about and one payment date to keep track of each month, borrowers who used to juggle multiple debts will have a far easier time staying on top of their finances..

To look into consolidating your debt, try filling out the application found here.

5. Dispute any errors

Since most people don’t know they can get a free credit report each year, few are even aware if their report has errors.

For all you know there is a line in your report stating that you falsely owe a bank hundreds of dollars , or a note saying you were late on a payment when in fact you weren’t. These falsehoods can lower your score, which is exactly why it is so important to read your credit report regularly. Sure these reports aren’t exactly an exciting novel, but careful and consistent reviews can save you money in the long run.

That bad credit isn’t going to fix itself. Consumers have nothing to lose—except their bad credit—by employing these five methods. So what are you waiting for? Apply these five ways and see your credit score change… along with your financial life.