From being able to take out a mortgage to getting a new credit card with great perks, your credit history can have a huge impact on your finances. But it can be challenging to understand what can help build credit – and what can hurt it.
Building credit may be harder if you’ve experienced a setback like a job loss or a medical emergency. Challenges like these can cause you to fall behind on your bills and, as a result, damage your credit health. It can happen to anyone, but the good news is you can rebuild your credit and recover.
9 Ways to rebuild credit
These credit-strengthening tips may help, whether you're trying to get back on course or just want ways to keep a good track record going.
1. Pay your bills on time
Payment history is a big part of your credit score. If you’re trying to rebuild your credit, focus on making payments consistently and on time.
2. Consider a secured credit card
If you’re having difficulty getting approved for an unsecured credit card, consider getting a secured credit card. Secured cards require a security deposit, which acts as collateral on purchases, and can be easier to qualify for than unsecured cards. Demonstrating responsible credit use with a secured credit card can help you start rebuilding your credit.
3. Review your credit report
It’s a good idea to obtain a copy of your credit report and review it for fraud or potential errors. You can request a credit report from each of the 3 major credit bureaus once every 12 months.
4. Keep an eye on credit utilization
Your credit utilization ratio shows how much of your available credit you’re using.
This number can play a significant role in your credit, so it’s important that you monitor your utilization and keep it low. A good rule of thumb is to keep this ratio below 30%.
5. Consolidate debt with a balance transfer or loan
Debt consolidation can be another way to help start rebuilding your credit. You may be able to use a balance transfer credit card or a personal loan to consolidate debt. For both of these options, look for lower interest rates than what you are currently paying on your existing debts.
While consolidating debt alone doesn’t rebuild your credit, it may make your debts easier to repay by simplifying your payments and potentially helping you save on interest. If you consolidate credit card debt using a new balance transfer credit card or a personal loan, the additional credit may decrease your credit utilization ratio and help improve your credit score.
6. Become an authorized user
Another way to help rebuild credit is to become an authorized user. If the primary accountholder demonstrates responsible credit use, you may be able to benefit – this may help improve your own credit score. Keep in mind that the card issuer must report authorized users to the major credit bureaus for it to impact your credit.
7. Ask for higher credit limits
You may be able to ask your card issuer for a credit limit increase. When you increase your credit limit but keep the same spending habits, you use less available credit and decrease your credit utilization. This may help improve your credit score.
8. Catch up on overdue bills
Late payments generally stay on your credit report for up to 7 years and can impact your credit score significantly. If you have any overdue payments on credit cards or other loans, you’ll want to develop a strategy toward paying these as soon as possible and making future payments on time.
9. Consider your credit mix
Credit scores typically factor in the diversity of your credit accounts (such as mortgages, personal loans and credit cards), known as your “credit mix.” When lenders consider approving you for credit, they like to know that you’ve handled a variety of debt types responsibly over time.
While it’s usually not a good idea to take out a new loan or apply for a new credit card just to improve your credit mix, understanding what accounts you have open can help you make informed decisions about managing your credit.
