How to Rebuild Your Credit Score

While you can’t improve your credit score overnight, there are steps you can take to rebuild your credit over time. You can get your credit score into the good or even exceptional range with discipline and consistency. Here’s how to rebuild your credit score.

H3 – Check your credit report

Start by reviewing a copy of your credit report, which you can access weekly for free at AnnualCreditReport.com.³ You can order a report from each credit bureau and get a bird’s-eye view of your accounts and payment history.

Your credit reports can help you identify factors that may be dragging down your score. For example, delinquent accounts and defaulted loans can significantly impact a credit score.

Keep an eye out for errors on your report since credit bureaus don’t always get it right. If you spot any mistakes, file a dispute to try to have them removed.

H3 – Make on-time payments on your loans

Making on-time payments on loans can help rebuild your credit score, while late payments will damage it further. Contact your creditors for assistance if you’re in danger of missing payments. They might be able to adjust your payment due dates so they align better with your paychecks or set up an alternative payment plan that works for your budget.

H3 – Reduce your credit utilization rate

When you’re considering how to rebuild your credit scores, consider your credit utilization rate. Your credit utilization rate is the amount of credit you’re using compared to what’s available, and it can significantly help or hurt your credit score.

Let’s say you owe $4,000 on a credit card with an $8,000 limit. That would give you a credit utilization rate of 50%. This is a high ratio and could be harmful to your credit score.

To protect your score, keep your credit utilization rate under 30% (the lower the better).⁴ If a high rate is damaging your score, come up with a plan for getting it under control. Review your income and expenses to determine how to pay down your balances. These money-saving hacks could help, too.

Asking for a credit line increase can also help reduce your credit utilization, but this strategy only makes sense if it doesn’t cause you to spend more. Credit card companies often report your balance to credit bureaus monthly, so reducing your utilization rate could quickly improve your scores.

H3 – Set a budget

Creating a budget to manage your money can also help you develop financial habits that will help rebuild your credit. There are different approaches you can use, like the 50/30/20 rule or zero-based budgeting. The main goal is to track your monthly income and expenses and meet your savings and debt payoff goals.

Consider your goals

Setting realistic goals will help you stay on track when rebuilding credit. Some goals could include checking your credit report once a month, saving a set amount in your emergency fund by the new year, or cutting your credit card balances in half over the next three months.

Once you set your goals, consider the steps you must take to achieve them, like setting aside 5% of your paycheck into savings or paying an $25 extra on your credit cards each month. Make sure your goals are attainable so you don’t get discouraged.

Consider how rebuilding credit will make your life easier, too. Maybe you’ll be able to qualify for a mortgage or open a rewards credit card that gives you cash back or travel points. Having a clear and exciting vision of what you’re working toward can help you stay committed to your goals.

Be wise with your credit cards

Stay up-to-date on your credit card payments while reducing your credit utilization. Pay at least the minimum each month to avoid late fees.

If you can’t afford your credit card payments, contact the card issuer about a hardship or forbearance plan. Be proactive about coming up with a solution before you miss any bills.

Check your finances often

Track your progress as you work to rebuild your credit. Several free credit monitoring services can help you keep tabs on your credit score. Some credit card issuers also offer free features to access your credit scores. Purchasing your FICO scores from myFICO.com is an option, too.

You may need to adjust your spending plan as you go, especially if unexpected expenses arise. Checking in frequently can help you monitor your progress and stay on track toward your goals.