How to Rebuild Credit

How to improve your credit score for a bright financial future.

If you’re looking to rebuild credit, first come to terms with the fact that there is no such thing as a quick credit fix, and how long it will take to fix yours 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.

When you have good credit, you have financial options: You’ll likely be approved for loans and credit cards with better terms and lower interest rates. Once you know how to fix your credit, try your best to follow through. Once you do, you’ll be on your way to a financial life filled with perks.

How to Fix Your Credit

Get started on improving your financial future today. Here are six tips on how to rebuild your credit score:

1. Take Care of Any Late Payments

Payment history is a key factor in credit scores, so pay any delinquent accounts. And make sure you continue to keep them in good standing.

2. Reduce Your Credit Utilization Ratio

Another important credit score factor is your credit card utilization, which translates into your balance-to-limit ratio. If that credit card debt, or ratio, is too high, it could hurt your credit score, so pay off your credit card balances in full each month. Responsible credit card usage can go a long way toward repairing credit.

3. 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.

Related: 7 Best Types of Loans for People With Bad Credit

4. Get a Secured Credit Card

You can use credit cards to rebuild credit, too. When you get a secured credit card you put collateral money in a security account and gain access to it depending on your income and ability to pay that amount. A 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 credit card — your security deposit does not count toward payments, like in the case of a prepaid card, but as collateral only.

Keeping up your payments can rebuild your credit, but if you default, the card issuer is entitled to keep your deposit. You can also find credit cards for bad credit and use one responsibly to boost your credit score.

Explore: 10 Best Credit Cards for Bad Credit

5. 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. Instead of exploring new credit avenues, use your existing credit to show your ability to manage it responsibly.

6. Check Your Credit Report and Address Any Errors

You are entitled to a free credit report every year from each big credit bureau: Experian, TransUnion and Equifax. Make sure you examine your report for errors and dispute any immediately in case a company plans to do a credit check on you.

Repairing Your Credit Takes Time

You can’t fix credit overnight. It probably took you a while to develop bad credit, so rebuilding your credit will take time and energy, but considering how important good credit is in our society, if you do take the steps to improve your credit score, it will be time and energy well spent.

Up Next: How to Choose Between Secured and Unsecured Credit Cards