How to Rebuild Credit

A man checks his phone with a credit score diagram hovering above it.

Good credit can make many of life's financial situations easier and less costly. For example, with good credit, you can get approved for a mortgage or auto loan, and possibly qualify for the best available interest rates and terms. A good credit score can also affect how much you pay for insurance, and whether a utility company asks for little or no deposit before starting a service for you.

If you've made financial missteps in the past, your credit scores might not be as high as you'd like. While you won't be able to instantly delete these past negative items from your credit report if they're accurate, you can take steps to rebuild a more positive credit history starting today, and improve your credit going forward.

What's Influencing Your Credit Scores?

Many factors can influence credit scores. Some of the most common credit scoring factors are:

  • Payment history — a record that includes the on-time payments you make as well as late or missed payments.
  • Credit utilization ratio — compares the total amount of credit you have available to you with how much of it you're actually using right now.
  • Total debt — the total amount of debt you have, including credit cards, loans, collections, and other credit accounts.
  • Mix — the types of credit accounts you're using.
  • Age — how old your credit accounts are.
  • Hard inquiries — your recent applications for new credit.
  • Public records — such as bankruptcies or civil judgments.

The best way to know what factors are affecting your credit scores is to look over them often - and you can check your credit score from Experian. You'll get a list of the credit score factors that are impacting this score the most. If you're trying to improve your credit scores, you should consider tackling these factors first. Also monitor your credit regularly, which you can do for free through Experian, to keep a close eye on your score, the information in your credit report and your progress over time.

Taking Steps to Rebuild Your Credit

If your credit scores are lower than you'd like, know that change begins with you! The steps that you take to change your credit behaviors are usually reflected as positive updates in your credit scores over time, because the data that goes into your scores is comprised of all the actions you make when it comes to credit.

  1. Pay Bills on Time

    • Pay all your bills on time, every month.
    • If you have any past-due accounts, bring them current and make on-time payments going forward.
    • Consider setting up automatic payments or payment reminders to help ensure you aren't ever late with a payment.
  2. Think About Your Credit Utilization Ratio

    No one wants to max out their credit cards, and creditors don't like to see credit accounts that look maxed-out either. Your credit utilization ratio compares the total amount of credit you have available, based on credit card limits, to how much of your available credit you're actually using (your balance). The lower your credit utilization ratio, the better. (Most experts recommend you keep it below 30%.) You can reduce your credit utilization ratio by:

    • Paying off credit card debt.
    • Keeping credit card balances low or at zero.
    • Being cautious when closing accounts. When you close an account, you reduce your amount of available credit, which in turn affects your credit utilization ratio.
  3. Consider a Secured Account

    Opening a secured account, such as a secured credit card, can also help build positive credit history and can be a valuable tool if you're having trouble getting approved for more traditional loans or credit cards. With a secured account, you deposit cash into an account as collateral, and then borrow a percentage of that amount for credit. Your use of a secured credit account is reported to credit bureaus, so as you pay your monthly bill, your good payment history helps build your credit. Opening a new account will create a hard inquiry to your report, too - so make sure that's something you're doing sparingly.

  4. Ask for Help from Family and Friends

    Your family and friends may be willing to help you build your credit. They can do this in several ways, including:

  5. Be Careful with New Credit

    Opening new credit card accounts, or even just applying for them, can affect your credit scores. Increasing the amount of credit you have available could improve your credit utilization ratio, but only if you have the self-discipline to pay your bills each month. What's more, every credit card application you make will appear as a hard inquiry on your credit report, and too many hard inquiries in a short amount of time can negatively affect your credit scores. A lender may also see multiple credit card applications within a short period of time and interpret that as a sign you're in financial hot water and are using credit to stay afloat, or live beyond your means. Lenders generally want to be certain you're not in danger of overextending yourself financially before agreeing to extend you additional credit.

  6. Get Help with Debt

    If you're struggling to pay your debt, you have options for help, including:

    • Credit counseling — A certified credit counselor can help you create a financial plan to better manage your debt. The Federal Trade Commission says most reputable credit counseling organizations are nonprofit. The Department of Justice's U.S. Trustee Program maintains a searchable list of approved credit counseling agencies.
    • Debt management plan — A DMP focuses on eliminating your debt. You'll have to deposit money each month with a credit counselor who will then use the money to pay your unsecured bills according to a payment schedule the counselor works out with you and your creditors. Creditors may agree to lower interest rates or waive certain fees, but they're not obligated to do so.
    • Debt consolidation — If you're struggling with many high-interest unsecured debts, like multiple credit card balances, a debt consolidation loan can help you reduce the amount of interest you pay each month. In this way, you might be able to trim the total amount you pay every month, simplify your life by paying just one bill instead of multiple ones, and even pay down your debt faster.

How Long Does It Take to Rebuild Credit?

Rebuilding your credit doesn't happen overnight. It takes time to re-establish a good payment history, pay down the debts you may have and let negative information cycle off your credit report. It may help to know how long negative information appears on credit reports.

  • Late payments will be removed seven years after the date the account first went delinquent and brought current. If a payment is missed and the payments were never brought current, and the debt moved to collections, then the original delinquency date would be the date of the first missed payment, and would be removed seven years from that date.
  • Collections remain on credit reports for seven years after the original delinquency date.
  • Chapter 7 bankruptcy — the kind that completely discharges debt — remains on credit reports for 10 years from the filing date.
  • Chapter 13 bankruptcy — which repays debt under renegotiated terms — cycles off credit reports seven years after the filing date.
  • Civil court judgments stay on credit reports for seven years from the filing date.
  • Paid tax liens are removed from credit reports seven years after the filing date. Unpaid ones remain for 10 years after the filing date.
  • Hard inquiries drop off credit reports after two years, and their impact on credit scores diminishes over time.

You can mitigate the impact of negative information by taking positive steps, such as making payments on time moving forward. Keep in mind that if you make a payment today on an overdue account, it can take up to 30 days to be reflected on your credit report, depending on when the creditor reports your payment to Experian.

Fortunately, you have a lot of power when it comes to building and rebuilding your credit. Learn more about how to build credit, check your free credit report and credit scores regularly, and take steps to improve your credit history. Before you know it, those positive actions can show their positive effects in your credit.

How Good Is Your Credit Score?

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