How to Rebuild & Fix Your Credit Score

It doesn’t take much to damage a good credit score. 

From late payments to bills in collection, carrying too high credit card balances to bankruptcy to here, there are many ways to ruin your credit. Before you know it, your score has dropped below 650 and into dangerously low territory. And the worse your credit gets, the harder your life becomes.

Your credit score impacts every aspect of your financial life. That includes renting an apartment or being approved for a mortgage, all the way to student loans and business loans. Your credit score can impact your insurance premiums. Many employers check credit scores as part of the vetting process when hiring new employees.

While rebuilding your credit score usually takes several years for a full recovery, you can see progress almost immediately once you begin to take action to repair it. The hardest part is getting started.

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How to Rebuild Your Credit Score

Not every one of the steps below applies to every consumer, and you don’t necessarily need to finish one step before proceeding to the next.

Start simple and take these steps as slowly and incrementally as you like. Credit scores rarely leap up overnight; it takes time, patience, and ongoing effort to gradually rebuild credit.

1. Don’t Apply for New Credit

Before you do anything else, stop the bleeding. Debt — particularly credit card debt — creates a vicious cycle. 

Stop applying for new credit cards, loans, or other lines of credit. Focus instead on paying down your existing debts, so you don’t keep digging yourself into ever deeper holes of debt.

Beyond avoiding new debts, it also prevents damage to your credit score, as each new credit application causes a temporary ding to your score. 

2. Pay Your Bills on Time

You will never improve your credit score if you keep making late payments. It’s that simple.

Start with a commitment to yourself: “I will never make another late payment again.” Say it out loud, write it down, declare it to friends and family members, post it on social media. You don’t get any excuses, “cheat months,” or exceptions ever again.

Next, set up automated payments for all debt payments that report to the credit bureaus. That includes your mortgage, car loans, credit cards, student loans, personal loans, and sometimes even utility bills. The payments should leave your checking account each month without you having to lift a finger. Nearly all creditors allow for automated payments through your online account.

3. Catch Up on Past-Due Accounts

If you’re behind on any of your loans or credit accounts, they need to become your highest priority pronto. 

That means every spare dollar each month needs to go toward catching up on missed payments. And not just at your “business as usual” savings rate, either. You should freeze all discretionary spending until you catch up on these past-due accounts.

No meals at restaurants, no lattes at Starbucks, no new clothes or accessories, no fancy skincare products. You are in a financial emergency and you need to treat it as such. Once you catch these accounts up, you can revisit your budget, but for now you need to go into lockdown mode.

4. Reduce Your Credit Utilization

The second-most important factor bureaus use to calculate your score is your balances. Specifically, they like to see all your rotating credit balances under 30% of your available credit limit.

Bring each credit card’s balance below 30% of its total limit. For example, if a card’s limit is $10,000, pay the balance down below $3,000. And it doesn’t just apply to credit cards, either — pay down all revolving credit balances to fall below the magic 30% threshold. The bureaus don’t include installment loans however, such as mortgages or personal loans, when calculating your credit utilization.

Getting below a 30% credit utilization ratio is the second-fastest way to improve your FICO score, after fixing errors on your report. The more money you can put toward paying down your credit card account balances, the faster you can improve your credit score.

5. Pay Down Your Credit Card Debt

Responsible credit card holders pay their balance in full every single month. Thus, they incur no interest costs and only see the benefits of rewards, fraud protection, and other credit card perks.

It sounds simple, and it is. Yet over half (54%) of Americans carry a credit card balance over from month to month, according to a report by the American Bankers Association.

If you aren’t financially stable and responsible enough to pay each credit card balance in full every month, you shouldn’t have a credit card. Credit cards allow freedom and flexibility, but they come with responsibility. Know yourself well enough to know if you should leave your credit cards in a drawer, unused except for a single recurring charge with an automatic monthly payment you can easily pay off each month. 

For example, I keep one of my cards open with just my Audible membership charge hitting it every month. I set up automatic payments to pay off the card in full each month, so I never have to give that card a second thought.

Try this plan to pay off your credit card debt in full. No excuses, no delays, just knock it out and say sayonara to credit card debt once and for all.

6. Review Your Credit Report

Now that you’ve stanched the worst of the bleeding, you need to check your report to establish a starting point for your credit repair journey. The three primary credit bureaus — Equifax, Experian, and Transunion — allow you to pull your credit report for free once a year, with no ding to your score. In fact, federal law mandates it.

Review every account, both open and closed, that appears on your credit report. Make sure that each appears accurate, and if you see one that seems incorrect, follow the steps to fix errors on your credit report. It’s free, surprisingly simple to do, and is the fastest way to boost your credit score.

Unfortunately, you generally don’t get to see your actual credit score when you pull your annual free report. For that, consider a credit monitoring service. 

You have several options for free and paid credit monitoring services. I use Credit Karma as a free option. They provide you with your Transunion and Equifax scores, updated weekly, and alert you about major changes, such as new accounts reporting on your credit or data breaches. You can also select more robust options like ScoreSense to view and monitor all three credit scores.

7. Open a Secured Credit Card

Different consumers face different credit challenges. Some have open credit cards and simply need to pay off the balances and establish a history of on-time payments moving forward.

Others have no opportunity to build credit history. They may have lost their credit cards due to abuse, or never have had any cards in the first place. If you have bad credit or no credit, you need a credit account to demonstrate a pattern of on-time payments. Secured credit cards offer a cheap and easy way to do this.

The credit card company holds your cash as collateral for your credit card. The secured card works like a normal credit card and reports to the bureaus normally, but the card company is protected against default — which it requires because of your uncertain credit history.

The good news is you don’t have to use these training wheels forever. Once you establish a better credit history, you can move on to a normal credit card. 

A word of caution: Be careful not to confuse secured credit cards with reloadable prepaid cards. Prepaid cards do not report to the credit bureaus and won’t help you build credit.

8. Get a Cosigner

If you don’t love the idea of a secured credit card, you could ask a family member or close friend to co-sign your application for a new credit card.

On the plus side, you get a “normal” unsecured credit card. But if you fail to make each payment on time, the late payments ruin your co-signer’s credit as well as yours. And if you default, the co-signer remains equally liable for your unpaid balance.

This says nothing of the risks to your relationship, or the embarrassment of having to ask such a large favor. If you have someone who loves and trusts you enough to do this for you, don’t make them regret it. 

9. Become an Authorized User

Did you know that by becoming an authorized user on someone else’s credit card, their entire card payment history instantly starts appearing on your credit report? 

You get a card in your own name, but it’s linked to their card account. When you make a purchase, it goes on their statement and runs up their balance.

If you don’t have much credit history, this can boost your credit score by dozens of points. It’s fast, simple, and gives you access to more credit without having to apply for it and ding your score. 

Of course, it requires someone to trust you enough to give you access to their credit card. If you rack up debt, they’re on the hook for it. Only spouses and close family members even consider this in most cases. Even then, expect resistance given your less-than-stellar credit habits. 

The credit bureaus aren’t the only ones you need to prove your reliability to as you rebuild your credit and personal finances. To sweeten the deal, you could offer your family member to keep your card in their possession and not even give you the card number, preventing you from running up their balance. 

10. Get a Credit-Builder Loan

A relatively recent addition to the world of personal finance, credit-builder loans report to the credit bureaus like normal installment loans. But instead of borrowing from a lender, you effectively lend money to yourself, held in an escrow account by the “lender” for you.

When you create an account with the lender, you choose a loan term and amount. You then agree to make regular monthly payments to the lender over that term, which the lender sets aside for you in your escrow account.

At the end of the loan term, you get your money back, minus a small fee the lender keeps for the trouble of creating your escrow account and reporting your on-time payments each month.

Most credit-builder lenders, like the ones you can get from Self, allow you to set up automated monthly payments to make it even easier to establish credit through a reliable payment history.

11. Consider Credit Counseling

They don’t teach budgeting, personal finance, and credit building in schools. Which is precisely why so many people are bad at it. 

Take a bite of humble pie and acknowledge that you don’t know everything, and that if you messed up your credit in the first place, you could stand to know more about budgeting and debt than you do. Reach out to a nonprofit offering credit counseling to get some expert help on creating a budget — and sticking to it. 

Many offer debt management plans or other services, but start with a simple conversation. Ask for tips and advice based on your personal financial situation. Among other tips, they may point out student loan forgiveness programs or other creative options for paying back your student loans if you have them. You don’t know what they know that you don’t until you ask!

Start by contacting your local Consumer Credit Counseling Service office, which provides free or low-cost assistance to those in need.

Final Word

It’s rarely quick or easy to rebuild your credit. It requires you to make changes to your spending habits, as well as your mindset around money. Even after you start doing everything right, it typically takes at least a year to accrue a good payment history that will have any effect on your credit score. It can take up to 10 years to remove black marks like legal judgments and bankruptcies.

To start knocking out your debts quickly, commit to either the debt snowball or debt avalanche method. They remain staples of personal finance because they work.

The effort will pay off. When it comes time to apply for your next apartment or take out a secured loan, such as a mortgage or auto loan, you’ll be able qualify for a low interest rate, low or no fees, and a small down payment.

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