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How to Rebuild Your Credit

6 min read

Last Updated: October 24, 2024

Table of contents

Key Takeaways

Rebuilding credit takes time and there’s no set time period to rebuild your credit, as there are many factors to consider.
Usually, the first step to rebuild credit is to request your credit report and assess your credit history.
Making on-time payments is one of the most important factors in rebuilding credit.

Whether you want to get a home, student loan, credit card, or even a new job, having solid credit is important. However, if you miss a few payments or carry a high balance, your credit score may suffer. Fortunately, bad credit doesn’t last forever—as long as you take steps to improve your credit score. By taking a few proactive measures, you may build positive credit history and develop good credit habits that help you thrive. Follow these tips to get back on track.

How to rebuild credit

If your credit isn’t where you’d like it to be, don’t panic—you can improve your credit score by working toward excellent credit habits.

A few thoughtful choices, like paying bills on time, reducing your debts, and diversifying your credit accounts, can help you rebuild your credit, no matter what shape it’s in. That way, you may qualify for a wider range of credit card options, like travel credit cards or cash back cards.

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While your unique financial situation may influence the most important steps to rebuilding your credit, the following basics can help.

Assess your credit history

To start rebuilding your credit, you have to understand your credit history. You can request a free credit report online every week from each of the three major credit bureaus—Experian, Transunion, and Equifax—at AnnualCreditReport.com, according to the Federal Trade Commission (FTC). Compare the reports and your credit scores for any discrepancies or errors. You might quickly improve your credit by reporting errors to the credit bureaus for resolution. Checking your credit reports often could also help you identify habits that might be hurting your credit, like paying your bills late.

Make every payment on time

Payment history plays a vital role in your credit score, so do your very best to avoid missing payments on any existing or new debt. If you have a hard time remembering to pay your bill by the due date, you may utilize your credit card company’s online reminders or set reminders of your own. You may also consider setting up automatic payments if you have a set amount budgeted for debt repayment each month.

It’s important to make at least the minimum payment on your debts each month. If you’re worried you won’t be able to afford it, you can contact your financial institution and talk with them about other options. While it’s important to not miss payments, avoid borrowing from high-interest lenders as this may ultimately compound your debt problems, rather than resolve them. Paying off a debt doesn’t remove your payment history from your credit record.

Understand your credit utilization ratio

Once you’ve identified all your open lines of credit, determine your credit utilization ratio on each card. To do this, take your current credit card balance and divide it by your credit limit, then multiply that number by 100. If you owe $1,000 on a card with a $10,000 credit limit, your credit utilization ratio is 10%.

High credit utilization ratios may have a negative impact on your credit score. As you work on rebuilding your credit, try to keep your credit utilization ratio as low as possible. By reducing your credit card debt, you can decrease your credit utilization rate. One way to do that is by paying down your card with the highest balance first and paying the minimum on your other cards. Keeping a credit account after you’ve repaid a debt can demonstrate long-term responsible use. (But you might stash the card in a drawer if you don’t want to overspend.)

Establish a diverse credit mix

After you’ve gotten a handle on responsible spending habits and given your credit score a boost, consider diversifying your credit accounts. You can apply for a new type of credit, like a personal or car loan, if you need one. Demonstrating your ability to manage different types of debt can help you rebuild your credit. That said, avoid opening multiple lines of credit all at the same time. Each time you apply for a credit account, it creates a "new credit inquiry" on your credit file, and too many of these in a short period can have a negative impact.

How to rebuild credit with responsible use¹ of the Discover it^® Secured Credit Card

Practicing good credit habits can help rebuild your credit history. But you might struggle to qualify for a standard card with a fair or bad credit score. In that case, you may consider a secured credit card. If you're approved for a secured credit card, you deposit an amount of money upfront as a form of collateral to the lender.

You can rebuild your credit with responsible use, like repaying your balance in full on time each month, as long as the credit card issuer reports your activity to at least one major credit bureau.

Did you know?

If you’re looking for a secured card that earns rewards, you may apply for the Discover it^® Secured Card. Unlike some secured credit cards, the Discover it^® Secured Card allows you to earn cash back from every purchase you make on the card.

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How long does it take to rebuild credit?

There's no set period of time that it takes to rebuild your credit, as various factors contribute to your credit history.

If you’re able to review your free credit report and identify any errors, reporting those errors to the credit bureau to correct them may impact your credit history.

If you’ve been a victim of identity theft or fraud, you may find that fraudulent charges (and non-payment of those charges) are the problem with your credit history. Resolving fraudulent charges with both your credit card issuer and the credit bureau that is showing the erroneous charge can help them get removed from your credit report.

Building credit history or improving bad credit takes time and dedication. Whatever your situation, the best time to start working on building good credit is now. By focusing on establishing a reliable history of on-time payments or by using new credit cards to increase your credit mix, you can take the steps to rebuild your credit, earn a good credit score, and make your financial goals a reality.

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