How to Rebuild Your Credit Over Time

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Having a strong credit score can open doors to more affordable financial products, like loans, and can even help position yourself as a prime candidate for a new apartment. If your credit is poor or you’ve just undergone bankruptcy, however, these opportunities might be harder to come by.

Learning how to rebuild credit after bankruptcy or increase your credit score is possible, but there’s no instant solution to get you there. It takes time, but implementing a few strategies to improve your credit, can go a long way.

1. Make on-time payments

Payment history accounts for 35% of your FICO credit score which is the biggest influencing factor of your credit calculation. This is the easiest target to hit when it comes to rebuilding your credit. 

Missing a payment on an existing or new account further drags your credit score down. To help you avoid this hit, set up auto-pay for all of your payments a few days before the due date. This can be done either through your creditor or through your bank. Demonstrating consistent, on-time payment habits can help you raise your credit score faster.

2. Ask to be an authorized user

Getting approved for a revolving line of credit can be challenging, coming out of bankruptcy. One way to get access to a credit card to prove your creditworthiness is asking a family member to be an authorized user on their credit card. 

All payment activities on the account are reported to credit bureaus, giving you a chance to make those on-time payments we talked about. Since authorized users are not technically responsible for making payments (this falls on the primary account holder), the impact of this credit strategy isn’t as strong compared to being a primary user on your own account. But it can still help.

3. Use a secured credit card

A secured credit card is a helpful tool in rebuilding or establishing credit. This type of card requires collateral which lessens the risk for card issuers in case you don’t make good on your payments. For example, you might have to provide a cash deposit of $500 for collateral, which then acts as your credit card limit.

As you make purchases using your secured card and make on-time payments, the card issuer reports this information to the credit bureaus thereby helping your credit score. When you’ve closed your account and repaid your entire balance, your security deposit is returned to you.

4. Keep your credit utilization ratio low

Even with products like secured credit cards, it’s important to stay mindful of your credit utilization ratio. A credit utilization ratio is a ratio between the amount of credit you’ve used and your total credit limit. Your credit utilization factors into 30% of your FICO score — the next biggest component of your score, after payment history. 

Keeping your credit utilization ratio as low as possible is ideal, with the maximum that experts advise being 30% — though this figure is considered the high end. Paying down existing debt can help you manage this ratio. For new credit card accounts, consider setting an email alert once you’ve hit 10% of your credit limit. This can help you stay aware of where you stand with your credit utilization.

5. Avoid applying for too many lines of credit

To rebuild credit after bankruptcy, it can be tempting to open multiple lines of credit to aggressively boost your credit and demonstrate responsible credit habits. However, this might backfire if you apply for too many lines of credit, too quickly. 

Each formal credit or loan application requires a “hard pull” on your credit report. This inquiry adversely affects your credit score which is counter-intuitive when it comes to lifting an already poor score. New lines of credit impact your FICO score by 10% and although it’s a smaller factor than the ones mentioned above, it’s a ding that you likely can’t afford to make.

Ultimately, rebuilding your credit can take years. if your credit score has derogatory marks, such as a collection or late payments, it can take up to seven years for those accounts to drop off of your report. Similarly, bankruptcy can take up to 10 years to leave your credit history.

Bide your time, and make responsible credit moves in the meantime. The effort is worth the benefits of strong credit.

Jennifer Calonia