How to Rebuild Your Credit

Sometimes it might seem like building good credit is impossible, given all the potential missteps you can make. There’s also the risk of incorrect or fraudulent information included on your credit reports without your knowledge.

The good news is that there are plenty of ways to rebuild your credit score. If you’re like most people, you’ll see the biggest increases in your credit score by following tried-and-true, long-term strategies like making all your payments on time and keeping your credit utilization low. But there are plenty of other avenues, some of which can impact your score in as little as one month. Let’s dig into them.

Review Credit Reports for Errors

Credit reports aren’t an exact science. One landmark study in 2013 showed that 25% of people had errors on their credit reports, and for 80% of those folks, the error was big enough to affect their credit score—sometimes by 100 points or more. Credit report errors are also the most common complaint submitted to the Consumer Financial Protection Bureau (CFPB), according to the agency’s annual report—more than 430,000 such complaints were filed in 2023.

You can check your credit reports with each of the three credit bureaus (Equifax, Experian, and TransUnion) once per week for free. It’s a good idea to do this periodically, but especially before you plan to apply for credit. That way, if you do find any errors, you’ll have time to submit a dispute with the credit bureau to have them fixed.

Although you can check your credit manually, a credit monitoring service can make the task much easier. These services can track your credit as it changes over time, with alerts whenever anything new appears on your credit reports. Some cost money, but there are also some excellent free services.

Make Timely Payments

The single biggest factor affecting your credit score is whether you make payments on time or not. Payment history alone accounts for 35% of your credit score. The impact of a late payment will fade over time before falling off your credit reports entirely after seven years—a blessing, but still a long time.  Thankfully, the impact of negative items like late payments decreases over time.

To help avoid late payments, make sure all of your bills are set on autopay. This can help you avoid paying any late fees, too.

Catch Up on Overdue Bills

Not all overdue bill payments weigh equally on your credit score. Lenders report how many months your payments are overdue, and the later they are, the more of an impact they’ll have on your score. 

So, if you have an overdue bill this month, don’t put off paying it until next month if you’re able to pay it now. Paying it off as soon as possible can help prevent more damage to your credit score, and you’ll start your journey toward repairing your credit sooner. 

Pay Off Your Credit Cards

Another quick and high-value way to increase your credit score is to pay down your credit card debt. The amount of money you owe makes up 30% of your credit score, and a big part of that is your credit utilization ratio—i.e., how much of your total credit limit you’re using. The less you use—while still using some credit—the better. The amount reported to the credit bureaus and used for the utilization calculation for a given month is usually the statement balance shown on your billing statement. 30% or below is generally a good spot to aim, as your credit score will start to benefit more significantly at that point.

Ideally, you’ll be able to pay off your balance in full each month (after the statement balance is generated, and by the due date). But even just paying down some of your credit card debt may help increase your score right away, and it can save you a lot of money in interest charges, too. 

Increase Your Credit Limits

Another way you can lower your credit utilization ratio is by asking the credit card issuer to increase your credit limit. You might still owe $2,000, for example, but owing $2,000 with a $4,000 credit limit (a 50% credit utilization ratio) is different from owing $2,000 with an $8,000 credit limit (a 25% credit utilization ratio).

The important caveat is that you’ll need to refrain from using that newly available credit, if you can; otherwise, you’ll be back in the same place you were before, with the same credit utilization ratio.

Only Apply for Credit You Need

When you apply for credit (as opposed to just checking your rate), lenders generally do a hard credit inquiry, which shows up on your credit reports. Each hard inquiry can cause your credit score to drop by a few points, for up to a year. However, if you shop for similar products, like car loans, within the span of a few weeks, the scoring formula will wrap all of those together into a single credit inquiry. 

That’s why it’s best to only apply for credit when you need it, and be especially mindful before applying for something big like a mortgage. 

Avoid Closing Old Accounts

One of the hardest things to work on when it comes to building credit is simply the length of time that your accounts stretch back. The length of your credit history makes up about 15% of your credit score, although you don’t necessarily need a long history to have good credit. 

One simple solution is to keep your old credit cards open and use them occasionally. But if a card charges an annual fee, it probably makes more sense to close it if you’ll no longer use it.

Consult With a Credit Counselor

If you’re overwhelmed with debt problems or credit rebuilding issues, or you just want a second opinion, an excellent option is to reach out to a nonprofit credit counseling agency through the National Foundation for Credit Counseling. 

You’ll generally start with a free intake and planning session, during which a counselor will review your budget with you, listen to your concerns, and help you identify the best solutions. They can even set up a debt management plan and negotiate with your creditors to help you pay down debt and rebuild credit without further harm to your score. 

Become an Authorized User

Another handy credit-building trick is to become an authorized user on someone else’s credit card. When you do this, that card account is essentially duplicated onto your own credit report, so you’ll want to pick someone who you trust and who manages their own credit well. 

You may or may not be issued a credit card in these cases; if you are, you don’t have to use it. You can hand that card back to the main account holder if they prefer, but you’ll still benefit as long as they continue to manage their account well.

Get a Co-Signer

Getting a loan can help you establish a good record of on-time payments. But first you need to get approved, and that can turn into a catch-22 situation if you don’t have good credit to begin with. One solution is to find a trusted friend or family member who co-signs on your loan, essentially agreeing to serve as a backup if you can’t repay it yourself. 

It’s a big thing to ask of someone, though, since any missteps you make can harm their credit, too. Make sure you’ll be able to repay the loan, and consider setting rules about how you’ll communicate with them about repayment. 

You should only get a typical installment loan if you truly need it. If you don’t need one but want to build your credit with a loan, consider the next strategy.

Get a Credit-Builder Loan

Many credit unions (and several other sources) offer credit-builder loans for the express purpose of—you guessed it—building credit. These loans are easier to qualify for and may not even require a credit check. 

It works like this: Rather than releasing the loan funds to you directly, the lender sets your loan aside in a CD or savings account where it earns interest (usually very little). You’ll make regular monthly loan payments to the lender, which will be reported to the credit bureaus. This adds positive information to your reports and builds your credit score. 

Once you’ve paid the full loan amount, the funds are released to you, and (hopefully) you have a good credit score along with a healthy amount of savings to boot. One 2020 study from the CFPB showed that the average credit-builder loan borrower added $253 to their savings and grew their score by 60 points, although the effect wasn’t as great among people who already had existing debt. 

Get a Secured Credit Card

If you can’t get approved for a typical unsecured credit card, some lenders allow you to apply for a secured credit card, which requires a security deposit for approval. Typically, your credit limit will match your deposit amount. If you don’t pay off the card balance, the lender already has payment on hand, so they’re generally more willing to approve people with lower credit scores for secured cards. 

As a bonus, many lenders will upgrade your account to a regular credit card and refund your deposit after you’ve used it responsibly for a period of time. This works especially well since your credit history is preserved, helping to grow your score even more than if you simply closed the card and opened another one somewhere else. 

Add Rent and Utility Payments to Credit Reports

You’re not alone if you’re frustrated when you find out that all of your on-time payments toward non-debt bills don’t actually count toward building credit. In fact, your rent and utilities aren’t included on your credit reports at all unless you’re late and they get reported—a doubly cruel irony. 

You can, however, add regular bill payments to your credit reports with at least one of the credit bureaus through the Experian Boost service. It works by linking up your bank account so it can see your spending history, allowing you to choose which bills to include or not.

There are also ways to add on-time rent payments to your credit reports, like  TransUnion’s TruVision Resident Credit service. These generally require the approval and participation of your landlord.

Frequently Asked Questions (FAQs)

The Bottom Line

Learning how to rebuild credit seems confusing at first, but it’s not too difficult when you understand how your credit score is calculated. If you know how your credit score works, it’s easy to see why increasing your credit limit can have a similar impact as paying down credit card debt, for example.

You don’t have to become a credit expert, but taking some time to learn more about how credit scores work can help you put each of these list items in context. That, in turn, can help the lessons stick in your head better and motivate you to continue down the path to rebuilding your credit.