How to Rebuild Credit

Credit scores represent the information on your credit report, which contains your history of paying back loans and credit cards and other financial history, like filing for bankruptcy.

The three major credit bureaus – Equifax, Experian, and TransUnion – collect this information from your creditors to create your report. Credit scoring companies, like FICO® and VantageScore, use the data on your report to generate your score.

Everyone has multiple credit scores, but lenders commonly look at FICO scores, which range from 300 to 850.¹ Depending on your score, lenders might consider your credit poor, fair, good, very good, or exceptional. Your FICO score is based on these factors:

• Payment history (35%): This is your record of paying back your creditors. On-time payments help your score, while late payments drag it down.
• Amounts owed (30%): Your total debt amount and credit utilization — the percentage of your available credit that you’re using on your credit cards and other lines of credit — also affect your credit score.
• Length of credit history (15%): Building a good credit score takes some time, so the longer your credit history, the better.
• Credit mix (10%): Managing a mix of credit, like installment loans and revolving credit lines, can positively impact your score.
• New credit (10%): Applying for new credit can ding your score, though the effect is often short-lived.²

Your credit score often updates based on your payment history, credit card charges, and other factors.

A weak credit score can be a roadblock if you want to open a credit card or take out a loan since lenders see it as a red flag that you might not pay your debts back on time. As a result, they might not approve your application or, if they do, charge you high interest rates.

Rebuilding your credit score after having some credit troubles can feel unattainable, but it is possible, and the results are well worth the effort. Here are a few strategies to help you patch up your credit score.

Pay on time

Making on-time payments on loans and credit cards can help rebuild your credit score, while late payments will damage it further.

Contact your creditors for assistance if you’re in danger of missing payments. They might be able to adjust your payment due dates so they line up better with your paychecks. They might also set up an alternative payment plan that works for your budget.

Try to keep most of your credit limit available

When rebuilding your credit, your credit utilization rate, which is the amount of credit you’re using compared to your available credit, should be low.

Let’s say you owe $4,000 on a credit card with an $8,000 limit. That gives you a credit utilization rate of 50%. This is a high ratio and could be harmful to your credit score.

To protect your score, keep your credit utilization rate under 30% (the lower the better).³

Get a secured credit card

A secured credit card is meant for people with poor credit or limited history.  You put down a security deposit as collateral, and the deposit amount is your credit limit.

You can use the secured card like a regular credit card. The credit card issuer can keep your deposit if you don’t make monthly payments.

But if you use a secured credit card responsibly, you can expect your credit score to increase. Eventually, you can upgrade to an unsecured credit card or apply for a regular one elsewhere.

Get a credit builder loan or secured loan

If credit cards aren’t your speed, consider a credit builder or secured loan. These small, short-term loans are designed to help you establish or rebuild credit.

With a credit builder loan, instead of receiving a lump sum from a lender that you pay off over time, the lender sets aside the loan amount in an interest-bearing savings account. You then make monthly installments. At the end of the loan term, you get access to the balance and any interest earned on the account, minus any interest or fees charged by the lender.

A secured loan uses an asset – for example, a car, motorcycle, or life insurance policy – as collateral. The lender can take the collateral to cover its losses if you don’t repay the loan. Because the collateral reduces the lender’s risk, these loans are usually easier to qualify for than unsecured ones. Plus, managing a secured loan responsibly with on-time payments helps you rebuild your credit.

Become an authorized user

If someone with strong credit trusts you enough, they can add you as an authorized user on their credit card.

An authorized user is allowed to use another person’s credit limit – they even get a card in their name linked to the original cardholder’s account.

While the original cardholder is liable for any charges incurred by the authorized user, the credit card issuer typically reports the full payment history of the card to the credit bureaus, allowing them to build a positive credit history.

Get a co-signer

If your credit is shaky, having a co-signer with strong credit can help you qualify for loans or credit cards.

A co-signer agrees to be legally responsible for your debt if you default on the loan, and this extra assurance means you have a better chance of getting your loan or line of credit application approved.

But remember, a co-signer puts their good credit on the line for you. Repay the favor by making the payments on time. Otherwise, late payments and delinquencies can hurt their credit score.

How long does it take to rebuild your credit score? It depends.

Specifically, the amount of time will depend on how severe the issue was and how recently it occurred. Filing for bankruptcy can stay on your credit report for 10 years and has a major impact on your score.

Late payments can stay on your report for seven years, but the impact will fade as you demonstrate responsible credit use. Compared to bankruptcy, a single missed payment that happened years ago won’t affect your credit score as much.

Regardless of the issue, negative marks will eventually fall off your credit report over time. You don’t have to wait to start taking action, though, as making on-time payments on your loans, reducing your credit utilization, and taking other proactive steps can all help rebuild your score.

Once you’ve taken the above steps to rebuild your score, here are some good credit habits that can help you continue building and maintaining your credit.

Pay off your balance monthly

Carrying a balance on your credit card might seem harmless, but those interest charges can add up quickly. Paying your balance in full each month saves you money and shows lenders you can handle credit responsibly.

Make more than the minimum payment

If you can’t afford to pay your balance in full each month, at least aim to pay more than the minimum. Minimum payments are like treading water: they keep you afloat, but you don’t get closer to your goal. Paying even a little extra each month can help you get out of debt faster and save on interest.

Read your credit card statements

Don’t just skim your statements; review them line by line. This will help you spot errors, monitor spending, and catch potential unauthorized charges before they snowball into bigger problems.

Spend within your budget

Treat your credit card like cash. Don’t charge it to a credit card if you wouldn’t spend it from your checking account. Sticking to a budget helps you avoid the credit card debt trap.

Check your credit reports regularly

Review a copy of your credit report regularly. You can access your credit reports weekly for free at AnnualCreditReport.com.⁴ Review your report from each credit bureau to identify errors and other factors that may drag down your score.

Avoid opening too many accounts at once

Each credit inquiry dings your credit score slightly. Resist the temptation to open multiple accounts in a short time. Instead, focus on managing your current credit responsibly.

Your credit score doesn’t define your worth but it can open doors to lower interest rates and better borrowing opportunities. So keep at it, and know that your efforts today will pay off tomorrow.

Looking for a credit card that can help you build your credit? Here’s our list of the best credit cards to build credit.