How to Rebuild Credit in 7 Steps & How Long It Will Take
The best way to rebuild your credit score is to get a secured credit card and use it responsibly. This ensures positive information gets sent to the credit bureaus on a monthly basis. At the same time, you should catch up on any bills you’re behind on and start saving whatever money you can each month.
Just remember that rebuilding credit is a process that takes time and requires focus on the basics. 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 purported credit “repair” service can do that you cannot do for free by yourself.
How to Rebuild Credit:
- Review your credit report.
- Catch up on past-due bills.
- Budget and build an emergency fund.
- Use a secured credit card responsibly to add positive credit history.
- Check your credit score regularly.
- Use different credit cards for different needs.
- Be patient for your score to improve.
Now that you know the basic steps, it’s time to go through each in detail. We made the following tips as practical as possible to give you both the structure of a plan and a clue about how to actually stick to it. Knowing what to do and actually doing it are two very different things, after all. We also explored how long it will take before you can put bad credit behind you, hopefully once and for all.
Steps to Rebuild Credit Explained
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 factors that influence bad credit scores.Get Your Free Credit Report
Once you’ve confirmed the accuracy of your credit reports, you can begin working on fixing the roots of the problems. 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
If you don’t address the exact cause of your bad credit, the damage is likely to worsen the longer it goes untreated. For example, if you’ve missed a few credit-card payments, repaying at least the minimum amount needed to change your account’s status from “delinquent” to “paid” on your credit reports will prevent your score from falling further. The same is true of collections accounts and other derogatory marks — at least to a certain extent.
Satisfying such obligations won’t remove the records 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 scores – including VantageScore 3.0, VantageScore 4.0 and FICO Score 9 – stop considering collections accounts once they’ve been paid.
It’s critical that you take this step first because an ongoing issue will sabotage all 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 centerpiece of this effort should be your emergency fund. If you have money saved for a rainy day, you’ll be far less likely to miss payments and damage your credit if met by hefty emergency expenses.
Try to save at least one month’s worth of income before applying for credit again. And stash away two or three months’ worth of take-home pay before shifting your focus to getting out of debt. Your ultimate goal should be to have a year’s take-home pay to fall back on, if needed.
4. 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. And 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 pay your monthly bills on time and avoid maxing out your spending limit, your score will gradually improve.
5. Check Your Credit Score Regularly
Much like an athlete in training, you should use data to track your credit-improvement progress. You 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. You won’t find free daily scores anywhere else, and you don’t want to live in the past when you’re running from bad credit.Check Your Latest Credit Score – 100% Free
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.
6. Use Different Cards for Different Needs
Once you reach good credit, consider giving the Island Approach a shot. This means using a group of credit cards and assigning each a specific role.
Isolating your financial needs on different credit-card accounts will help you get the best possible terms on every transaction that you make. For 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.
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 overspending. Separating everyday expenses from a balance that you’re carrying from month to month will help you save on finance charges, too. Interest charges are based on an account’s average daily balance, after all.
7. Be Patient
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.
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 previously had excellent credit, it will take longer to get back there than it will to return to fair credit. So where you see your credit when fully rebuilt obviously affects how long the process will take.
- 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 follow the instructions from above, and avoid falling back into old habits.
You can find more information in our article analyzing the credit-building timeline. In addition, you can learn more about the causes and consequences of bad credit by exploring all of the reasons credit scores drop.
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