How to Rebuild Credit

Accurate—but negative—information appearing in your credit reports doesn’t mean the end of the road for improving your credit scores. The impact of negative items on your scores will decrease over time. In the meantime, you can take steps to rebuild a positive credit history and reap the benefits of better credit scores sooner rather than later. The best advice on how to rebuild credit is simply this: Demonstrate over time that you can manage credit responsibly.

Change Your Credit Card Habits

Purchases
Reign in your purchases and make wise purchasing decisions. If you can’t afford an item, don’t put it on your card.

Balances
Keep your monthly balances low—at or below 30% of your credit limit so the amount you owe compared with your available credit stays low.

Payments
Pay on time and in full each month whenever possible. Make at least the minimum payment on all your cards; never skip a payment.

Payment dates
Make your payment a few days before the end of the billing cycle so that your balance is at its lowest when credit reporting occurs.

Keep Existing Accounts Open

Closing an account doesn’t erase it from your credit history.
Closing an account adversely affects your credit score by decreasing your available credit and shortening the length of your credit history.
Exceptions—Close cards that increase fees or terms and negatively impact your financial situation. Also close cards if you’re a victim of identity theft.

Open New Credit Cards

Number of cards
Start by adding a single card. One card is better than none at all because you’re trying to build a positive payment history.

Type of card
Choose a reputable credit card. If necessary, choose a secured card for which you provide a deposit that covers all or part of your credit limit. Look for cards with low fees and fair interest rates. Be sure to read and understand the card’s terms and conditions.

Denials
Wait before you apply elsewhere to understand why you were denied and whether you can fix the problem before you apply again. The number of new credit applications negatively impacts your credit score.

Make sure the credit card issuer reports to the three major credit bureaus. Avoid prepaid cards because they don’t report to the credit bureaus. Make sure timely payments are reported.

Final Tips About How to Rebuild Credit

Plan for success then work your plan.
Decrease your amount of debt. Pay down your accounts with the highest interest rates. Make minimum payments on all of your accounts.
Negotiate lower interest rates (or higher credit limits) after you’ve established a positive track record over 6 to 12 months.
If you absolutely can’t make a payment, communicate directly with your creditor to make an alternative arrangement.
Don’t give up. Rebuilding credit takes time, commitment and discipline, but the end result—a better credit score—is worth it.

Even when life gets out of hand and you fall behind in paying bills, run up a lot of debt or make other mistakes that ruin your credit score, Credit Management Specialists can help. We offer credit repair, education and financial guidance, and work to raise your credit scores so that your financial recovery is successful.