10 Ways to Rebuild Your Credit and Take Back Financial Control

However, there is another fact about which many people are unaware: a poor credit rating is not an end to life. Adopting the correct behavior, most individuals can start to see improvements in terms of how to rebuild credit in six to twelve months.

How Long Does It Take to Rebuild Credit?

It's important to understand what you have to deal with first. It may depend on various factors, including your current starting point.

The following numbers are estimations. The actual timeline depends on the overall state of your credit and debts and the effectiveness of the positive practices you will implement.

10 Proven Strategies to Rebuild Your Credit

1. Make On-Time Payments — Every Single Month

Payment history makes up a third of the total FICO score evaluation, making it the most important one. If you miss one payment and are late for 30 days, your FICO score takes a plunge, and the missed payment stays on your credit report for 7 years, according to the CFPB.

The remedy to this issue is straightforward: pay your minimums on each account on time. In case you have missed your payment already, try to restore it prior to reaching the mentioned 30 days mark. Once the payment is noted, act promptly to mitigate additional harm done.

"Paying minimum amounts on time every month. Ideally, one should make a larger than minimal amount payment. However, paying in time ensures that you don't lower your score anymore and start building it back"

Melanie Musson, Finance and Insurance Expert

Pro Tip:

Set up autopay for the minimum payment on every account. This eliminates the risk of forgetting and protects your payment history even during busy months.

2. Get Your Credit Utilization Under Control

Secondly, your credit utilization, which carries a weightage of 30%, is the next most important element after payment history.

It is just the percentage of your available revolving credit balance that you are utilizing.

You should aim for a utilization ratio below 30%. If your total credit limit across all the credit cards is $5,000, you should try not to exceed the amount of $1,500 in terms of balances. Both overall credit utilization and individual account utilization are considered by the bureaus.

Some methods you can use to lower this ratio include:

• Paying off the outstanding balances monthly whenever possible

• Increasing the credit limit (without an increase in spending)

• Keeping the old accounts open to maintain credit availability

3. Open a Credit Card Designed for Credit Building

A credit card is one of the most reliable tools for rebuilding credit because it creates an ongoing record of responsible behavior. Regular use with small balances and on-time payments signals reliability to the bureaus over time.

If your credit score is low, a secured credit card is the easiest entry point. You put down a refundable deposit usually equal to your credit limit and the card reports to all three major bureaus just like a traditional card.

After six to twelve months of responsible use, many issuers will review your account and either upgrade you to an unsecured card or return your deposit. It's a slow burn, but it works.

4. Keep Your Old Credit Accounts Open

One of the most effective ways to improve credit scores is by getting a credit card since it establishes a continuous history of good behavior. Using the card consistently while having minimal balances and making timely payments demonstrates dependability.

When your credit scores are poor, a secured credit card can help you get started easily. With a refundable security deposit which is equal to your credit limit, the card reports to the three main credit agencies as any normal card would do.

After six months to a year, the company may consider upgrading you to an unsecured card or refunding your money.

5. Use a Credit Builder Loan to Add Installment History

However, a credit builder loan is different in that it allows the individual to get an installment account in his/her credit mix and build payment history.

This is because once the credit builder loan is issued to the borrower, it is deposited into a secure account with the lender until he/she pays it back. After that, the loaned amount along with minus fees and interest is made available to the borrower.

According to Musson, the sole aim of having a credit builder loan should be building credit only. It is highly advisable not to get any loan simply for the sake of credit building.

6. Become an Authorized User on Someone Else's Account

Being added as an authorized user on a trusted friend's or family member's card could positively impact your credit standing. This strategy doesn’t require any application; the only thing you need is to ask your friend or family member to add you to his/her card.

When the main card holder maintains a good payment record and uses the card wisely, your credit score will get some of the benefits. Just make sure first that the issuer reports the activities of the authorized users to all three agencies (some issuers don’t).

Be aware that if the card holder fails to pay his/her debts or spends excessively, his/her negative actions could be reflected in your credit score too.

7. Try a Credit-Building Debit Card

The credit builder debit card looks and works just like any other debit card in that it uses the funds available in your checking account, but it does report on your payment behavior to the credit agencies, which can help improve your credit rating in time.

The bad news is that there are usually monthly or annual fees associated with the use of such cards, thus implying that you pay to spend your own money. A secured credit card offers the same benefits for much less money.

8. Consider Debt Consolidation as a Long-Term Credit Strategy

While debt consolidation may not improve your credit rating right away, it can help improve your credit rating in a much easier manner. Debt consolidation allows you to simplify your financial situation, decreasing the risk of missing out on the payments.

There are three main types of:

Debt consolidation loans

Consolidate several balances into a single loan balance, hopefully at a better interest rate than that which you currently have. With every payment, you’re improving your credit standing.

Debt management plans

The process takes place via a non-profit credit counseling agency. The counselor negotiates for better deal terms on your behalf, with all you have to do is deposit one payment each month.

Debt settlement programs

You can negotiate reduced payment amounts, although this usually means you need to stop making payments until negotiations are complete. Unfortunately, this actually hurts your credit standing temporarily.

However, most individuals attempting to repair their credit by addressing outstanding debts should take either the debt consolidation loan route or the debt management route.

9. Report Your Rent and Utility Payments

On-time monthly rent payments will not increase your credit score. However, enrolling in a rent and utilities payment tracking system that sends information about payments to credit bureaus turns routine expenses into positive payments in your credit profile.

The payment reporting service may involve an extra fee. The option is dependent on your landlord or utility company. If the company is eligible for the program, it may be useful for building your credit score especially if you lack an adequate payment history.

10. Monitor Your Credit Report Regularly

You cannot control what you do not monitor. Regular checking of your credit report shows the improvement, reveals mistakes in credit records, and proves whether your efforts have been successful.

AnnualCreditReport.com allows obtaining reports from all three credit bureaus (Equifax, Experian, and TransUnion) once a week free of charge. It means that any suspicious accounts, inaccurate information about late payments, or incorrect balance may be disputed on the Consumer Financial Protection Bureau website. One mistake in the records may significantly influence the score despite your efforts.

Pro Tip:

Rotate your bureau checks throughout the year. Pull Equifax in January, Experian in May, and TransUnion in September. You get broad, year-round coverage without paying for a monitoring service.

Common Questions About Rebuilding Credit

How long does it take to rebuild credit?

If you only have a missed payment, you may need three to six months of positive activity to restore yourself. Having multiple missed payments or having a collection will require you to wait even longer, sometimes one to two years, or even more than that. On average, it takes between three to five years after bankruptcy for your score to get better.

What's the fastest way to improve your score?

These are the quickest wins you can get by disputing false negative information on your reports, lowering your credit utilization by paying off balances or getting your limit increased, and becoming an authorized user on another account. The effects of these changes will appear in one to three billing periods.

Can you raise your credit score 200 points in 30 days?

Not likely. This is not something that would happen overnight, and depends greatly on your score and the negative information that appears on your reports. Work on building your positive habits and the rest should take care of itself.

Final Words

Rebuilding your credit is simple. All it takes is some patience and perseverance. What you need to focus on is paying your bills on time, maintaining a low balance on your credit cards, and keeping your old accounts open. Getting a secured card or a credit-builder loan would help establish some more positive history.

Your score will be better each month that goes by because negative records age and fall off your credit file. Your score today will not be the same as one year from now if you continue to be consistent.