How To Rebuild Your Credit History Step By Step

Written by Banks Editorial Team
5 min. read
Written by Banks Editorial Team
5 min. read

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You can’t erase your credit history, but you can rebuild it. Whether your credit has suffered due to mistakes you have made or circumstances beyond your control, such as a medical emergency or job loss, you can take steps to improve your credit. Be patient as you create new habits that will give you greater opportunities in the future.

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What Does It Mean To Rebuild Your Credit?

In the most basic terms, what it means to rebuild your credit is that you will be able to enjoy more of what life has to offer. Your credit history indicates how dependable you are about paying bills on time. Landlords review your credit when deciding whether to rent you an apartment. Insurance companies use your credit score when setting your car insurance rates. Having good credit can qualify you for better interest rates on car loans, credit cards and a mortgage loan to buy a home. If you’re hoping to start a business, your credit history can be the difference between qualifying for financing or not.

What’s Influencing Your Credit History?

It’s important to understand that several factors influence your credit history, each in its own way. The three credit bureaus may weigh each of these factors differently. When you look at your credit score from one credit bureau, you will see which factors affect your score the most. If you’re trying to improve your score, focus on those factors first. Here are the most common things that influence your credit history:

  • Payment history will show your on-time payments and any late or missed payments.
  • Credit utilization ratio compares the total amount of credit you’re authorized to use with how much you’re really using.
  • Total debt is all your current debts, including credit cards and other accounts, loans, and any debts currently in collections.
  • Types of credit you use are simply the mix of accounts, like credit cards, car loans, student loans, etc.
  • Age refers to how old your credit accounts are.
  • Hard inquiries are applications for credit you’ve made recently.
  • Public records indicate whether you have bankruptcies or other judgments on your record.

How Long Does It Take To Rebuild Credit?

If you’re wondering how long it takes to rebuild your credit, think about how long it took to establish your credit in the first place. If you have made late payments, have significant credit card debt, or your credit utilization is high, you can expect it to take time to reverse the negative impact of those actions on your credit report. Every situation may differ, and your circumstances will directly affect how long it takes to rebuild your credit. Here’s an example of how long it takes to rebuild bad credit into good credit. If your actions have caused a poor credit score of about 500, improving it to be a fair score in the range of 580 to 670 could take at least a year or 18 months of using credit responsibly. Every positive change you make, including paying bills on time and monitoring your use of credit, will have an impact, but it may take time to register on your credit.

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Steps To Rebuild Your Credit History

Taking steps to rebuild your credit history is a process that requires patience and perseverance. The key is to get started.

1. Review Your Credit Reports

The first step is to look at and review your credit reports so you know exactly what you’re dealing with. You can get a copy of your credit report for free from the three credit bureaus, Experian, Equifax and TransUnion. Be aware that you should not have to pay to get your credit report, so do not respond to offers that require payment. Also, consider that your credit score will not appear on your credit report. That’s because your credit report reflects your previous credit activity for creditors to review when considering your credit application. Your credit score is a number that fluctuates based on information in your credit report. Just as you can get your credit report for free, you can get your credit score at no cost too.

Your credit report contains public information, such as your current and previous names, addresses, names of creditors and status of credit accounts. Study your report for inaccuracies with your name, address and account status. According to Consumer Reports, more than one in three consumers find errors on their credit reports. Taking steps to correct errors can help you rebuild your credit.

2. Make A Financial Plan

In order to sustain your progress, you need to make a financial plan. Add up all sources of income and track your spending for a month. Keep track of everything you buy and every bill you pay or use a spending tracker app if that is easier for you. When you’re aware of how much money you have to spend and exactly how you’re spending that money, you can be more intentional about creating a budget and paying down debts to rebuild your credit. You can also challenge yourself to find ways to spend less money. Set a goal to help yourself financially, such as paying bills on time or getting another job to earn more money. Aim to start an emergency savings account to build a cushion you can use for unplanned expenses. It takes discipline to follow a plan, and it takes time to see progress.

3. Identify Areas In Your Credit History Where You Can Improve

Look for areas in your credit history where you can improve. But again, be patient. For example, if you have late payments in your past, it could take seven years after the account first became delinquent to be removed from your credit report. This explains why it’s essential to always pay your bills on time, even if you are making the minimum payment due. Also, aim to keep credit utilization below 30%. For example, if you’re approved for a $20,000 credit limit and have charged $10,000, your credit utilization is 50%, which will hurt your credit. While hard inquiries will stay on your report for up to two years, their impact lessens over time. Therefore, be mindful of that every time you apply for new credit. Collections stay on your credit report for seven years and bankruptcies for up to 10 years, so do what you can to avoid them.

4. Take Actions to Rebuild Your Credit

Every step you take in the process of rebuilding your credit is important. But this is where you can take action to boost your credit score. What is the fastest way to rebuild your credit? It may not happen quickly, but every step you take in the right direction will be reflected in improving your score. Indeed, it won’t be easy, but it will be worth it for your future.

Pay Your Bills On Time

Considering that your payment history impacts your credit score, focus on creating a more positive payment history starting now. This tip is for anyone asking, How can I rebuild my credit myself? Make your monthly payments on time. Make every effort to get up to date on past-due accounts also. It may be helpful to set up payment reminders or automatic payments, so you’re not late on any bill.

Be Careful With New Credit

The solution to your financial situation probably does not include opening new credit accounts. Simply filling out an application for a new credit card can have a negative effect on your credit score because it counts as a hard inquiry. You may think increasing the amount of credit you have access to can help improve your credit utilization ratio, but that only works if you’re paying your monthly bills on time.

Consider a Secured Account

Using a secured credit account is one way to rebuild your credit by adding positive transactions to your credit history. You deposit cash into a secured account that the bank uses as collateral and then borrow some of it using a credit card issued by the bank. As you use the secured credit account and pay your monthly bill on time, credit bureaus get reports of your good payment history.

Dispute Errors on Your Credit Report

An important reason to study your credit report is you may uncover mistakes. If there are errors on your report, such as closed accounts shown open, duplicate accounts or inaccurate payment history, your credit score could be lower than it should be. Each of the three credit bureaus, Equifax, Experian and TransUnion, track your credit differently, so errors on one may not appear on the others. You can usually dispute errors in writing using online dispute forms available on credit bureau websites. You may also need to contact the company that provided the information.

Get Help to Pay Off Your Debt

You may read the action steps to rebuilding your credit and decide you need to get help paying off your debts. Freedom Debt Relief can help end your debt stress and be on a path to becoming debt-free. The professionals at Freedom Debt Relief can:

  • Negotiate on your behalf to lower your debts
  • Reduce  your debts for a more affordable payment

To get the help you’re looking for, answer a few simple questions to request a free consultation with a certified Debt Consultant at Freedom Debt Relief.

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