How to Rebuild Your Credit

8 Steps to Rebuild Your Credit

There's no silver bullet for rebuilding a less-than-stellar credit profile. But regardless of the reasons for your current situation, here are some tried-and-true guidelines you can follow to get your credit score back where you want it to be.

1. Review Your Credit Reports

Every situation is different, so the best way to know how to improve your credit is to check your credit reports. These documents contain a history of your dealings with creditors, so reading them can help you determine which areas to address.

For example, if you have high credit card balances, you could focus on paying them down. Or, if you have an unpaid collection account, paying off that debt could be a top priority. You can also check your credit reports for inaccurate information that could be negatively affecting your credit score. If you find something, you have the right to file a dispute with the credit bureaus.

You can check your Experian credit report for free anytime, and you can also get your TransUnion and Equifax credit reports for free through AnnualCreditReport.com.

2. Pay Bills on Time

The most influential factor in your FICO^® Score^☉ is your payment history, so paying your bills on time is crucial. If you're behind on payments, make it a goal to get caught up as quickly as possible.

Then, consider creating a budget and cutting back on your discretionary spending to help ensure that you can afford to pay your bills on time going forward.

3. Lower Your Credit Utilization Ratio

Your credit utilization ratio is the percentage of your available credit on revolving debt—generally credit cards—that you're using at a given time. For example, if you have a $10,000 limit on a card and a $6,000 balance, your utilization rate is 60%.

While some credit experts recommend keeping your utilization rate below 30%, there's no magic threshold. Among consumers with excellent credit, utilization rates are generally below 10%.

Look for opportunities to add more to your monthly credit card payments, and in the meantime, consider using other payment methods, such as cash or a debit card, to avoid adding more debt.

4. Get Help With Debt

If you're having trouble keeping up with your debt, consider consulting with a credit counselor who can evaluate your situation and provide you with free guidance on how to tackle your debt.

A credit counseling agency may also recommend a debt management plan, which can help make your unsecured debt, particularly credit cards, more affordable. For a modest monthly fee, the agency can negotiate lower interest rates and payments with your creditors and help facilitate payments over a term of three to five years.

5. Become an Authorized User

If you have a family member or friend who has good credit, consider asking them to add you as an authorized user on one of their credit card accounts. Once your authorized-user status is reported to the credit bureaus, the entire history of the account will be added to your credit reports.

You can also get a card that's linked to the account and make purchases of your own. Just be sure to make arrangements with the primary cardholder to pay off your charges.

That said, avoid buying tradelines from strangers. While the practice isn't illegal, it's considered to be deceptive by lenders and could put you in danger of committing credit fraud.

6. Get a Cosigner

Making on-time loan payments can help you rebuild credit, but if your score is low, you may have trouble getting approved in the first place. If you do get approved, you may be faced with high interest rates and fees.

One way to improve your odds of approval and enjoy more affordable terms is to apply with a creditworthy cosigner. The lender will consider both your and their credit history and income. Keep in mind, though, that when a loved one cosigns a loan application, they're agreeing to pay off the loan if you can't. The debt will also show up on their credit reports, which could impact their ability to obtain credit.

As a result, it's important to ensure that your cosigner understands their responsibility and how the decision can affect them before you proceed.

7. Only Apply for Credit You Need

Making timely payments on multiple credit accounts can help you rebuild credit more effectively. But while it may be tempting to apply for several credit cards and loans, you could accidentally overextend yourself and make matters worse.

Additionally, having multiple credit inquiries on your credit reports in a short period could negatively impact your credit score and make it difficult to get credit when you need it.

As such, it's a good idea to avoid applying for a credit card or loan without a valid reason.

8. Consider a Secured Card

A secured credit card functions similarly to a traditional unsecured card, the only difference being that you need to put up a security deposit—usually equal to your desired credit limit—to get approved.

In many cases, credit card companies hold on to your deposit until you close the account. However, some major card issuers will refund your deposit and convert your account to an unsecured card if you exhibit good credit habits over a period of several months.

As you compare secured credit cards, look for options that charge no annual fee and offer rewards or other benefits that add value to your efforts to rebuild credit.

Frequently Asked Questions

Monitor Your Credit Regularly to Track Your Progress

As you work to rebuild your credit history, it's important to keep track of how your actions influence your progress. With Experian's free credit monitoring service, you'll get access to your Experian credit report and your FICO^® Score. You'll also get real-time alerts when changes are made to your credit report, making it easier to keep an eye on new developments.