Knowing how to rebuild a credit score involves an understanding of how credit scores work and of what you can do to make yours better.The first step to rebuilding your credit rating is to understand exactly what dragged it down in the first place.

  • A good payment history results in a high credit score. Late payments, bankruptcies, collections or judgements against you results in a low credit rating. The later the payment is and the more recently the late payments occurred, the worse your credit rating will be. This factor makes a big difference.
  • Using too much credit can lower your score. When you get a credit card, you are given a maximum credit line. Your score looks at how much of that you use, called your credit utilization. You’ll get the highest rating in this category if you keep your credit utilization to 30 percent of your available credit or less.
  • Opening too many new cards can hurt your score. It shortens the average length of your credit history and it results in too many inquiries.
  • Not having the right mix of credit hurts your score. Lenders like to see you with different types of credit, from credit cards from major lenders to mortgage loans and car loans.

Identify the areas where you need improvement and then take steps to correct them.


Make Payments on Time

You’ll need to achieve a good history of on-time payments to rebuild your score. If you have existing credit card accounts open, make payments on those each month on time. If you are in good standing with your lender and haven’t been late in a long time, you may even want to call your lender and ask if the lender is willing to remove a black mark or two from your report. The lender may be willing to go back and take a record of one or two late payments off as long as you are current now.


You Need Credit to Rebuild Credit

If you don’t have a credit card open, you may be wondering how to rebuild a credit rating without one. The reality is that it is nearly impossible to do so. You must have credit available to show you can be responsible with it.

If you don’t have an active credit card account, this means you need to open one. If your credit rating is especially bad, you may not qualify for an unsecured credit card and will have to open a secured card. This type of card requires collateral -in the form of cash- and the credit line is equal to the amount of cash you pay. These cards have fees and high interest rates, but if it is the only card you can get, you’ll need to bite the bullet and do it. Just make sure the lender reports to the three major credit bureaus (Equifax, Experian and TransUnion) so that your on-time payments show up on your report and help raise your score.

One of the best answers to how to rebuild a credit rating is to pay off your debts. This can make the credit utilization portion of your score go up. Pay down debt as aggressively as you can, creating a budget and sending any extra cash to pay off credit cards and other revolving debts.

You also want to refrain from closing accounts, since this can affect your credit utilization for the worse by lowering the amount of available credit you have, while your balance stays the same. Keep the cards, but don’t use them.

Remember, you never have to carry a balance to improve your credit- and in fact, carrying a balance can cost you money and get you into financial trouble.


Give it Time

There are no quick fixes to rebuilding your credit rating, and any company that offers you one is likely not being honest with you. It can take seven years for negative items such as late payments to drop off your report, or ten years in the case of bankruptcy or foreclosure. The further into the past those black marks were, the less they will matter.

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