Credit is a double edge-sword: a good credit score can help you buy a house with little money; a bad credit score can keep you from opening a bank account in certain places. Fortunately, you can always build back your credit score, no matter what happens. There are no magic bullets here, though! It takes time to do so.
It’s important to know what to do when you want to repair your credit after a hardship. We will explain why your credit score may take a hit, what to do to bounce back, and how to do it right.
1. Pay on time
The very first thing you have to do is pay your bills on time. Paying the minimum amount is okay if that’s what you can do for now. Of course, full payments would be even better. Don’t delay payments! The worst thing you can do is pay late (or worse, not paying). If you feel you can’t pay, contact your bank or lender and try to figure out a new plan. Do whatever you can to pay on time – because late payments stay on your credit score for more than seven years!
2. Take credit slowly
Building back your credit score is tricky. You have to open as many lines of credit as possible – but you have to maintain them as you do, and you can’t open them all at once. So, what can you do? You open a new line of credit and maintain it as best as you can for six months. After that, see if you can handle a new one. Rinse and repeat until your credit score is where it should be. Don’t open new lines of credit unless you can make payments on time! Otherwise, you will tank your credit score again.
3. Don’t use most of your credit
People with the best credit scores use less than 10% of their credit limit. The very best stay between 4% and 8%. You don’t need to do that to have a good score – but you need to stay under 30%. The lower you go, the better your credit score, though. The good news is your score won’t be hurt by your past actions once you lower your credit balance!
4. Get a credit-builder loan
A credit-builder loan is exactly what it sounds like: it’s a loan that helps you build your credit score. How does it work? A community bank or credit union will issue a loan, you pay back monthly installments, and they return most of it when you pay back the loan. The only thing they ask from you is proof of income. They may also ask you to demonstrate your ability to repay. At the same time, certain branches will offer a backed loan, which is borrowing money against your savings.
5. Become an authorized user
One of the easiest ways to build back your credit score is to become an authorized user. Someone with a credit card will authorize you to use that same account – and you will get points just for that. Make sure you trust whoever will put you as an authorized user, though. If they stop paying on time or similar, your credit score will take a hit too.
6. Get a co-signer
Accessing credit when having a bad score can be tough for most. If that sounds like you, you can ask friends or family to co-sign a loan or credit card. Think long and hard before you do! You’re putting both your credit score and theirs on the line when you do. If you miss a payment, both of you will take a hit for it. So, take a small loan and pay it back on time. Make sure you can deal with the monthly installments.
7. Don’t damage your credit again
It’s important to stress that you have to maintain a healthy credit score after you get it. Going back to your old habits will get you back to square one. So, what do you need to avoid? Missing payments is a no-no! That’s the cardinal rule of having a good credit score. Don’t close old accounts – even if you don’t use them. Believe it or not, having old bank accounts is crucial for your credit score. And don’t get too excited! Having a good credit score is awesome – but you can tank it if you take advantage of it early on. Wait for six months to a year and slowly take loans and use credit instead of using it all at once.
FAQ What can hurt my credit score?
The credit score system is pretty simple and straightforward: make full payments on time, and you get points; pay after a deadline, not pay in full, or miss a payment – and your credit score takes a hit. So, people with bad credit scores usually miss or delay their payments. Then again, that’s not the only thing you have to think about. Opening too many lines of credit at once will tank your score too. And having too much debt will also put your credit score in the red. At the same time, not using credit for a long time will hurt your score too. Being reasonable with your credit options is the best way to have a healthy credit score. Doing too much or too little will hurt you in the long run.
How long until I build back my credit score?
It depends! People with average to bad credit scores can take months to return to normal. People with terrible credit scores can take years to reach 700 points. In a worst-case scenario, such as people who filed for bankruptcy, it may take up to ten years to go back to normal. There is good news! You can start building back your credit score right now. The moment you plan your credit strategy is when you begin to score points. Start paying things on time, manage your credit cards better, and control your debt-to-credit ratio. You’ll go back to normal, little by little.
