September 21, 2023 |8 min read
If you’re working to rebuild your credit, you’re not alone. According to Experian®, nearly 1 in 3 people in the U.S. has what’s considered subprime credit scores. This generally means a score below 670. The good news is that with work, planning and responsible financial behavior, you should be able to improve your credit scores.
With better credit scores, you could make yourself more attractive to lenders when you apply for things like credit cards, mortgages and car loans.
Key takeaways
- It’s possible to rebuild credit with responsible use, like paying bills on time, managing your credit utilization and only applying for credit you need.
- Becoming an authorized user or getting a secured card could help show your ability to repay debt.
- While reviewing your credit reports alone doesn’t help your credit, it could help you understand what affects your scores and spot any errors.
- There are certain actions—like using a prepaid card or debit card and taking out payday loans—that typically won’t help your credit scores.
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Learn more8 ways to help rebuild credit
An important first step in rebuilding your credit is having a plan. And while every person’s situation is different, there are some helpful strategies to consider.
Here are eight tips that could help you rebuild your credit.
1. Review your credit reports
Your credit scores are affected by a number of factors, including your credit history. On their own, reviewing and monitoring credit doesn’t help rebuild credit. But knowing what’s on your credit reports will help you figure out exactly where you stand.
Your credit scores can give you a general sense of your creditworthiness. But your credit reports can offer much more detail.
A good first step is visiting AnnualCreditReport.com to request free credit reports from each of the three major credit bureaus: Equifax®, Experian and TransUnion®. If there are errors on your reports, they could negatively affect your credit scores. But you have the right to dispute errors or incomplete information on your reports.
2. Pay your bills on time
Paying all your bills on time may be easier said than done. But your payment history is a main driver of your credit scores. And negative information in your payment history—like missed or late credit card payments—could affect your credit scores for years. Missing payments could have other consequences too, like late payment fees.
Older negative information may count less than more recent information. So the longer you pay your bills on time, the better it is for your payment history. And the better it could be for your credit scores.
You might consider setting up a budget, automatic payments or reminder alerts to help you keep up with your bills. And making at least the minimum payment on credit accounts—like your credit card—will keep your accounts current and in good standing. But keep in mind that paying only the minimum could cost you more money in the long run and have other effects on your credit scores.
3. Catch up on overdue bills
If you have bills that weren’t paid on time and are past due, you’ll want to get caught up. And if you’ve fallen behind on your credit card payments, there are several steps you can take.
You could consider contacting your lenders if you’re struggling to keep up with your bills. They might be able to help you with a payment plan. And if you’re a Capital One customer having trouble making payments, you can contact Capital One to discuss your options.
4. Become an authorized user
If you have a loved one or someone you trust with good credit scores, they can add you as an authorized user to their account. This allows you to make purchases on their card account. The primary account holder is ultimately responsible for payments. And their responsible use can help rebuild your credit and boost your scores. Plus, there’s generally no credit check or need to apply in order to be an authorized user.
Be sure to check with the card issuer to see how they handle reporting authorized users to credit agencies.
5. Consider a secured credit card
As you’re working your way to better credit, a secured credit card may be helpful. You can make purchases with it, just like a traditional credit card. But it requires you to put money down as a security deposit to open the account.
When you have a secured card, some credit card companies like Capital One report your status to the credit bureaus. So if you’re making at least your minimum payment on time and using your card responsibly, it could help you improve your credit.
6. Keep some of your credit available
How much of your available credit you use is called credit utilization. And keeping your credit utilization below 30% can show you’re managing your credit responsibly and not overspending.
7. Only apply for credit you need
Applying for new credit accounts can cause your scores to drop temporarily. That’s because lenders typically run a hard credit check. Your credit scores might be negatively affected by too many hard credit checks in a short period of time.
8. Stay on top of your progress
As you work on rebuilding your credit scores, you might consider using a credit monitoring tool like CreditWise from Capital One. It’s a tool for everyone—not just Capital One cardholders. You’ll get alerts when there are meaningful changes to your TransUnion credit report. And you can always see your VantageScore® 3.0 credit score to keep an eye on your progress.
Credit rebuilding FAQ
If you’re still learning, here’s more information about rebuilding your credit.
What factors impact your credit scores?
The Consumer Financial Protection Bureau (CFPB) lists the following factors that can impact your credit scores:
- Payment history
- Amount of debt
- Age of credit history
- Credit utilization
- Credit mix
- New credit applications
Learn more about what affects your credit scores.
How long does it take to rebuild credit?
Rebuilding credit can take time. And just how long it takes to rebuild credit depends on your circ*mstances. Things like your credit history and current scores play a part in how long it takes to rebuild credit.
The good news is most things won’t impact your scores forever. And the effects of negative factors may decrease over time. Being patient and forming good financial habits can pay off in the long run.
How can I build credit using a credit card?
Even if you’re just starting out, it may be worth researching credit cards. With responsible use, you could use a credit card to help rebuild your credit.
These are a few different ways you can use a credit card to build credit:
- Pay your statement on time each month.
- Use only the credit you need.
- Stay below your credit limit.
It’s helpful to check your credit card statement and flag any transactions you don’t recognize. You can also monitor your credit with a free service like CreditWise.
What are some things that don’t build credit?
There are certain activities the CFPB says won’t help rebuild your credit, including:
- Paying with cash or a debit card: Using cash or a debit card to pay for your transactions doesn’t typically build credit. Like cash, a debit card uses your own funds rather than borrowing from a line of credit. And this activity isn’t typically reported to credit bureaus.
- Using a prepaid card: A prepaid card is similar to a debit card in that you can use it to make purchases. But instead of the card being linked to a bank account, you load funds onto it. Because the card doesn’t use credit, it won’t help rebuild your scores.
- Getting a payday loan: Many payday loan lenders don’t report to the credit bureaus, so on-time payments likely wouldn’t improve your credit scores.
- Taking out a “buy here, pay here” auto loan: This type of loan is repaid directly to a car dealership rather than a credit union or bank. If the dealership doesn’t report payment activity to the credit bureaus, your credit scores won’t be impacted.
Rebuilding your credit in a nutshell
Building better credit takes time, but it’s possible with responsible financial behavior. And it’s never too late to get started. Capital One offers secured and traditional credit cards for people with fair credit, as well as a secured card for those rebuilding their credit.
If you’re unsure which card might be a good fit, you can find out first whether you’re pre-approved with no impact to your credit scores.
