The best way to rebuild your credit score is to get a secured credit card and use it responsibly by making on-time payments and keeping your credit utilization as low as possible. This keeps positive information flowing to the credit bureaus on a monthly basis, which will gradually make up for past mistakes.
In addition, you should catch up on any bills you’re behind on and start saving whatever money you can for an emergency fund. Rebuilding credit is a process that takes time and requires you to focus on the basics.
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How to Rebuild Your Credit
- Review your credit report.
- Catch up on past-due bills.
- Budget and build an emergency fund.
- Become an authorized user.
- Get a credit-builder loan.
- Use a secured credit card responsibly.
- Check your credit score regularly.
- Stay patient as your score improves over time.
- Use different credit cards for different needs.
What you don’t want to do is pay for credit repair. Anyone who claims the ability to “fix” or “clean up” your credit for a fee is scamming you. There is nothing any credit “repair” service can do that you cannot do for free by yourself.
1. Review Your Credit Report
In order to fix a problem, you must first know what it is. And while it may be obvious that your credit is damaged, how it got that way isn’t always so clear. Fortunately, you can find the answer in your credit reports.
All credit scores are based on the contents of your credit reports. Any errors in those reports can cause undeserved credit-score damage. They can also indicate fraud. So check your reports, dispute any errors you find, and take steps to protect yourself from identity theft, if necessary. In particular, look for collections accounts, public records, late payments and other negative items that might be wrong.
Once you’ve confirmed the accuracy of your credit reports, you can begin working on fixing the root of the problem. One easy way to pinpoint your credit-score weaknesses is to sign up for a free WalletHub account. Your Credit Analysis will include a grade for each component of your latest credit score as well as personalized advice for how to improve problem areas.
2. Catch Up on Past-Due Bills
The more time that passes after you miss a due date on a credit card or loan, the worse it is for your credit score, so catching up on missed payments will help your score stop sliding and lay the foundation for your rebuild.
You don’t necessarily have to pay the full amount that you owe all at once. Rather, with a credit card, you can prevent your score from falling further by repaying at least the minimum amount needed to change your account’s status from “delinquent” to “paid” on your credit reports. The same is true of collections accounts and other derogatory marks — at least to a certain extent.
Satisfying these obligations won’t remove the records of delinquency from your credit reports, however. They’ll stay there for seven to 10 years, no matter what. But their status will change to show that you no longer owe money. What’s more, the newest credit score models – including VantageScore 3.0, 4.0 and 5.0, and FICO Scores 9 and 10 – stop considering collections accounts once they’ve been paid.
It’s critical that you get current on bills early on in your credit recovery journey because an ongoing issue will sabotage all your other rebuilding efforts.
3. Budget & Build an Emergency Fund
When you find yourself with damaged credit, it’s important to catch your breath and begin laying the foundation for a brighter financial future. Testing your financial literacy and educating yourself are part of that. But the centerpieces of this effort should be your budget and your emergency fund. If you are careful about how you spend money and have a good portion saved for a rainy day, you’ll be far less likely to miss payments and damage your credit when you're faced with big emergency expenses.
Try to stash away two or three months’ worth of take-home pay before shifting your focus to paying off your debt. Your ultimate goal should be to have a year’s take-home pay to fall back on, if needed.
Of course, that’s all easier said than done. To help you plan, check out WalletHub’s guide on how to make a budget and then try out our budgeting tools.
4. Become an Authorized User
If you do not have good enough credit or enough income to qualify for your own credit card, you can become an authorized user on someone else’s account. Becoming an authorized user doesn’t require a credit check. As an authorized user, you will get a credit card with your name on it that’s linked to the primary accountholder’s credit line. You will not be legally responsible for making payments on the account, but most credit card companies will relay information about the account to your credit reports.
This could be a good way to rebuild your credit as long as the account remains in good standing. If the bills aren’t paid on time, both the primary accountholder and the authorized user can suffer credit score damage. Not all issuers will report authorized users to the credit bureaus, so it’s a good idea to check with your card’s issuer to find out if they do. Also, some issuers that do report authorized users only report when the account is not delinquent.
5. Get a Credit-Builder Loan
A credit-builder loan is pretty much the opposite of a regular loan. The creditor puts money in a savings account and then you make monthly payments until you’ve paid an equal amount, plus a little bit of interest. Then, you get the money in the account at the end of the loan period, instead of at the beginning.
As the name suggests, credit-builder loans are designed specifically to help you build credit, rather than to borrow money. As you make your monthly payments, the lender will report them to the credit bureaus, letting you establish a history of paying on time. Naturally, if you fail to pay on time, you’ll just dig yourself into a deeper hole.
6. Use a Secured Credit Card Responsibly
A credit card could very well be the source of your credit-score problems. But it’s also your score’s best chance at recovery. You can’t remove negative records that are accurate from your credit reports, so the best you can hope for is to outweigh them with a steady flow of positive information. Credit cards are perfect for the job because anyone can get them, they can be free to use and they don’t force you to go into debt. Plus, they report information to the major credit bureaus on a monthly basis.
A secured credit card, in particular, is the ideal tool for rebuilding credit. Secured cards offer nearly guaranteed approval because they require a security deposit that doubles as the spending limit. This eliminates most of the risk to the issuer. Secured cards are also far less expensive than unsecured credit cards for people with bad credit, and you can’t tell them apart from unsecured cards on a credit report.
As long as you pay your monthly bills on time and avoid maxing out your credit limit, your score should gradually improve.
7. Check Your Credit Score Regularly
Much like an athlete in training, you should use data to track your credit-improvement progress. For one, it’s motivating to watch your credit score improve. You also need to know how things are progressing, where there’s still room for improvement, and when it’s time to trade up for a credit card with better terms. That’s where WalletHub’s free daily credit-score updates come in handy. WalletHub provides daily credit score updates, so you can always know your most up-to-date score and avoid living in the past when you’re running from bad credit.
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What’s more, we can’t overstate the importance of signing up for credit monitoring. None of us have the time to keep constant watch on the contents of our credit reports. But with a free service that notifies you about any important change, you’ll be able to sleep much more soundly and take care of the problem right away.
8. Stay Patient as Your Score Improves Over Time
Credit rebuilding takes time, and it’s measured in months and years, not days and weeks. After all, negative information remains on your credit report for seven to 10 years, and you can’t fully recover until it’s gone.
Sure, you can escape the depths of bad credit well before then by offsetting the negative records on your credit reports with an avalanche of positive information. But you won’t be completely out of the woods as long as your record has red flags.
You can try WalletHub’s free credit score simulator to see what effect different actions will have on your score and how soon you can expect results.
9. Use Different Cards for Different Needs
After you’ve had your secured credit card for a while, your score may have improved enough to qualify for better, unsecured credit cards that give rewards for purchases. Once you reach good credit, consider giving the Island Approach a shot.
Key Things to Know About the Island Approach
- Definition: WalletHub’s Island Approach refers to using a group of credit cards and assigning each card a specific role.
- Purpose: Isolating your financial needs on different credit-card accounts will help you get the best possible terms on every transaction that you make.
- Example: You could get the best cash back credit card for everyday expenses, the best travel rewards card for airfare and hotel reservations, and the best balance transfer card for reducing the cost of your existing debt.
- Protection Against Overspending: The Island Approach also gives you a built-in warning system for overspending. If you ever see finance charges on an account designated for everyday expenses, you’ll know you’re spending too much.
- Savings on Interest: Separating everyday expenses from a balance that you’re carrying from month to month will help you save on finance charges. Instead of every purchase you make accruing interest, along with the balance you’re paying off over time, you can completely avoid interest charges on everyday purchases.In other words, if you use one card for everyday spending and pay the bill in full every month, you’ll retain that card’s grace period and interest won’t be assessed. But if you keep your everyday spending on the same card you’re using to pay off a large balance over time, those purchases will count toward the account’s average daily balance, which is used to calculate finance charges.
Ultimately, saving money and avoiding serious debt will help prevent your rebuilding efforts from getting derailed.
How Long Does It Take to Rebuild Credit?
The short answer is that it usually takes at least a year to recover from bad credit, assuming you do everything right. But it all depends on your starting point, the length of your credit history and the moves you make going forward.
Rebuilding means different things to different people, depending on their:
- Expectations: If you’re aiming to return to excellent credit, for example, it will take longer to get back there than it will to reach fair credit. In other words, what you consider to be a fully rebuilt credit score will affect the timeline.
- Credit History: Even relatively minor mistakes can push someone with limited credit into the “bad credit” category. But it would be just as easy to reverse course in that case. On the other hand, the kinds of serious mistakes that require rebuilding a long and responsible credit record take far longer to recover from.
- Next Steps: The credit-rebuilding process will be slow if you continue to make mistakes, so it’s important to monitor your credit regularly to make sure you’re on the right track. WalletHub’s free credit analysis can help you on your journey.
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It’s worth noting that getting a cosigner on a credit card, which theoretically allows you to use someone else’s better credit score and income to boost your own approval chances, isn’t much of an option anymore. None of the top 10 credit card companies currently allow cosigners.
You can learn more about how to improve your credit score, as well as the best credit cards for rebuilding credit, here on WalletHub.
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