How To Rebuild Credit: 8 Steps You Can Take

Woman using laptop and shopping online while holding credit card at the desk by the window.
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Financial challenges can do a number on your credit if they cause you to pay bills late or miss payments. But your credit score is always changing. Just as negative credit activity drags your score down, positive activity pulls it back up. The trick is to avoid further negative activity while you take steps to whip your credit into shape.

How To Rebuild Credit

If you’re looking to fix your credit, you’ll have to come to terms with the fact that there is no such thing as a quick credit fix, and how long it will take to rebuild your credit depends on why your credit score is low in the first place. For example, building credit takes a lot longer for someone who has defaulted on loans than someone who has just missed a payment or two.

The good news is that you might see improvement quickly even with a poor FICO score of 580 or less. In fact, low credit scores actually improve faster than good scores in some cases, so don’t let a 500 score discourage you from taking action.

Here are some tips for getting your credit on track.

1. Check Your Credit Report and Credit Score

You can get one free credit report per year from each of the three credit bureaus, and for a limited time during the pandemic, you can order the reports weekly from Look for inaccurate information and unpaid accounts you might’ve forgotten about. These are easy fixes you can take care of by filing a dispute with the credit bureau, in the case of errors, or contacting the creditor for payment instructions.

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It’s also important to check your credit score so you can track your progress. Although you’ll have to pay to see the scores creditors use, you can access free educational scores from websites like Credit Karma to see how your score changes from month to month as you make positive changes in the way you use credit.

2. Pay Bills on Time

Payment history is a key factor in credit scores. In fact, 35% of your FICO score is based on your payment history, making it the most important factor.

Overdue payments stay on your credit report for seven years. However, their impact on your score lessens as time goes on.

Once you’ve caught up, make sure you keep all your accounts in good standing moving forward.

3. Reduce Your Credit Utilization Ratio

Another important credit score factor is your credit utilization. Credit utilization is your balance-to-limit ratio, and it makes up 30% of your FICO score.

According to Fair Isaac, the company that created the FICO scoring model, moderate use of your credit cards and other lines of credit isn’t necessarily bad for your credit score. Credit problems stem from using too a high percentage of your available credit. Lenders see that as a sign that you’re overextended and at higher risk of default.

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It’s important to note that your credit report can show that you have credit card balances even if you pay off your credit cards every month. You can avoid this by making your payments before the end of the statement period, when the creditor reports your account to the credit bureaus. The reported balance can affect your credit score if it represents a high percentage of your available credit.

4. Consider a Credit-Builder Loan

Some credit unions and banks offer these small loans designed to help you establish new credit or repair your credit. If you choose this option, you must make your loan payments on time every time, because that’s what will boost your credit score.

To give you an idea of what a credit builder loan is all about, Republic Bank offers loans from $500 to $1,500 with 12-, 18- or 24-month terms. The bank puts the amount of money you borrow in a CD that earns you interest. When you’ve paid off the loan, you can either withdraw your funds or leave them invested in the CD.

This credit builder program can help you improve your credit score in just 12 months, according to Republic Bank.

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5. Get a Secured Credit Card

When you get a secured credit card, you put collateral money in a security account and use the credit card to access it. The secured credit card works just like a regular credit card in that you can use it to make purchases anywhere. But this is not a prepaid card — you don’t draw from your security deposit when you use the card. The deposit only serves as collateral, meaning the card issuer is entitled to keep it if you default.

6. Apply for an Unsecured Credit Card

Once you’ve raised your score enough to qualify for an unsecured card, apply for one and use it responsibly. Several banks, including Capital One, offer fair-credit cards, if not bad-credit cards, for building or rebuilding credit.

Another option is to apply for a store or gas card. These can be easier to qualify for than bank cards.

In addition to giving you a way to build a history of on-time payments, the new card will increase your total amount of available credit, and in the process, reduce your credit utilization rate.

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7. Don’t Apply for New Credit Needlessly

Your credit report shows any applications for new credit as an inquiry, which indicates that you’re taking on new debt. And opening multiple credit accounts in a short period of time makes you a riskier borrower, especially if you have a limited credit history.

New credit makes up 10% of your FICO score, so the impact is modest. But every point counts when you’re trying to rebuild your credit, and using your existing credit shows your ability to manage it responsibly.

8. Become an Authorized User on Someone Else’s Account

A family member or friend can add you to their account as an authorized user. Then, when the creditor reports account activity to the credit bureaus, it’ll go onto your credit report as well as the original account holder’s.

Being an authorized user can help your credit as long as the account remains in good standing. However, Chase warns that this arrangement will hurt your credit if the account holder pays late or defaults.

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Good To Know

Credit takes time to rebuild, but there is a way to increase your score quickly if you’ve taken a positive action like correcting a credit report error, bringing an account current or paying down a credit card balance in order to qualify for a loan. The process is called rapid rescoring, and it reduces the time it takes for your credit score to reflect the positive activity from 30 days or more to less than a week.

Repairing Your Credit Takes Time

It probably took you a while to develop bad credit, so rebuilding will take time and energy. But considering how important good credit is for everything from renting an apartment to buying a car or home to applying for a new job, the steps you take to improve your credit score will be time and energy well spent.

Barri Segal contributed to the reporting for this article.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.


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