The student loan crisis makes credit repair seem all the more urgent, with interest restarting in 2023, payments marked late in 2024 and collections beginning May 5, 2025. Smartasset.com says the average 2025 California student loan balance is $38,354. With 42.5 million borrowers, roughly 6 million Americans face garnishments from wages, tax refunds and Social Security payments.
Liberty Street Economics reports in 2025, “…more than 2.2 million student loan borrowers who became newly delinquent saw their credit scores drop more than 100 points and more than one million saw drops of at least 150 points.” Furthermore, Lendingtree.com shows Californians with a $9,096 average credit card balance in 2025, up 10% this year. How can individuals repair credit to obtain mortgages, car loans or even some jobs?
Establishing Good Credit
New borrowers struggle because “length of history” measures 15% of credit scores—so don’t thoughtlessly abandon old cards. To establish credit, deposit money for a couple of secured credit cards and make regular payments, ideally reported regularly to three independent reporting agencies: TransAmerica, Equifax and Experian.
Fannie Mae and Fredie Mac accepted only FICO until recently, when Trump allowed VantageScore to compete and use rent payments to prove creditworthiness. Or convince a daring but solvent friend to become an “authorized user” on an established card. Later, big box stores might accept borrowers with hopes for sales. Ideally, borrow less than $100 from cards and set autopay or other reminders to pay diligently. Thirty-five percent of credit scores are “payment regularity” with delinquencies that can sting for a year. So pay mortgages, auto loans and student loans timely.
Thirty percent of credit scores are “debt utilization” ratios; borrow better below 30% and best below 10%. Avoid “new cards” (10% of ratings) manifesting cash struggles. Credit agencies prefer “Multiple Credit Types” (10% of scores), so mix credit cards with officially reported personal loans or long-term debts.
In June 2025, Trump and the courts are fighting over medical debt amnesty and Congress debates student loan repayment terms.
Student loan servicers don’t report until borrowers fail to pay for 90 days and then charge offs wait 120 days. Cooperative borrowers can defer payments with low income or be placed in forbearance and certain public employees may write off loans. Once in a lifetime, “rehabilitation” may erase bad credit. Defaulted loans may be consolidated, but bad credit remains, and bankruptcy may not relieve.
Recovering Good Credit
Credit inquiries actually ding credit by just 2-3 points and soon become irrelevant. Monitor your credit regularly. According to Consumer Reports, more than a third of Americans found at least one inaccuracy on their credit report, and many consumers dispute by calling lenders or credit agencies. Lawyers charge offenders to repair credit under the Fair Credit Reporting Act. If corrected, you must call creditors to remove lingering “consumer disputes.”
Thinking counter-intuitively, maintain credit balances because closed accounts update last activities on reports that look like new collections; seek credit repair help. Ignoring interest, pay off the lowest balance credit cards first in “snowballs” to reduce utilization of most individual cards as well as overall utilization. Personal loans or balance transfers may pay down revolving loans, but home equity loans (like mine) often save household finances with lower payments at lower interest rates secured by housing.
FICO scores measure credit worthiness with a person’s credit history as sole evidence—character, income and potential don’t count for measures of present solvency. Scores run between 300 and 850: below 580 is “Poor,” 580-669 is “Fair,” 670-739 is “Good,” 740-799 is “Very Good” and 800-850 is “Exceptional.” Unfortunately, the consumer obtained credit scores (Credit Karma) differ from lender scores. I’d be horrified if some readers had better scores to crawl further into the pit of debt.
Credit in a Better World
In my ideal world, save emergency funds and pay with debit cards. Net worth rather than FICO scores measures economic success. Buy your way up the used car ladder with savings and borrow student loans only for economically justifiable expertise—like nursing or my financial planning MS. Consider mortgage lending to avoid years of rent; homeowners retire, on average, with 40 times the equity of renters. So build credit mostly for homes—then cut up the cards!
Robert Arne, EA, CFP, MS, of Carpe Diem Financial Life Planning, gives holistic financial advice as his client’s fee-only fiduciary. This Mortgage Loan Originator (NMLS #2565162) serves mostly Santa Cruz Mountain dwellers. These articles must not be read as personal financial, mortgage, tax or investment advice; consult appropriate professionals. Learn more at www.carpediem.financial.
