How to Rebuild Credit [New Step-by-Step Guide]

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the millennial money woman blog post "how to rebuild credit"

Rebuilding your credit may seem overwhelming or even impossible. Rest assured: It's doable. Find out how to rebuild credit with my simple step-by-step guide.

In this article

Key Points

  • The easiest way to rebuild your credit is by making consistent and on-time payments
  • Bankruptcy is not typically an option – it can hit your credit score with up to almost an immediate 200-point decrease
  • A bankruptcy could stay on your credit record for up to 10 years
  • If you are someone who does not have a credit history, it might be worth looking into becoming an authorized user, obtaining a co-signor, or even using a self lending platform to build your credit

How to Rebuild Credit: An Introduction


Although I’ve already posted an article about 
building credit in the past – I wanted to share a new article specifically focused on how to rebuild credit fast.

Let me share a true story with you: I was talking to a young girl I help mentor. 

She probably was late teens or early 20’s at the most. 

She had literally no credit but desperately needed a car to help her get to work, so she could earn money and pay the bills. 

So, she decided to buy a $13,000 car. 

With no credit – because she never needed credit before in her life. 

Yikes.

What do you think that interest rate was for her – with no credit for a used, $13,000 car?

To give you a quick comparison – most auto loan interest rates (with decent credit) hover around 2% to 5% at a maximum.

“This young woman had to pay 29% interest rate on a $13,000 car loan because she simply had no credit history.”

If you ask me, that’s white-collar crime. 

So why do people have low credit in the first place? 

  • They still are college students with no credit history
  • They recently filed for bankruptcy
  • They are struggling with student loan debt payments
  • They were recently laid off due to COVID
  • They are undergoing a divorce

…And there are so, so many other reasons why people have low credit. 

The next question is this: What is the secret on how to rebuild credit fast?

And this is why I decided to write an in-depth article about how to rebuild credit fast – especially if you have none or are starting from ground 0 (due to circumstances like a bankruptcy).

why good credit is important 1

I want you to remember this: You won’t see an immediate change in your credit score. 

In fact, it could likely take months before you see a positive uptrend. 

Be patient, and keep working hard toward your goal. 

If you have to, re-read this article on how to rebuild credit. 

That should keep you on track to accomplish your goals.

How to Rebuild Credit: What Makes up your Credit?


To some extent, I feel like all of us are looking to 
increase our credit scores.

Although my credit score is in the high 700’s – which is not bad – I struggle to push my credit score into the 800’s just because I still lack the payment history and the time I’ve had my credit card accounts open. 

As you’ve seen, your credit score is determined by a few things:

  • Payment History = 35%
  • Debt Balance = 30%
  • Length of Credit History = 15%
  • New Credit = 10%
  • Types of debt = 10%
the millennial money woman blog post "factors impacting your credit score"

Image: The Millennial Money Woman | Source: Investopedia

But let’s say you have no credit history

What’s the rule on how to rebuild credit when you actually have no credit? 

There could be plenty of reasons why you don’t have any credit currently. 

Some reasons include:

  • Bankruptcy
  • Never had credit accounts
  • Foreigner 
  • College student

Some people may not feel like they need credit cards – and I don’t disagree with that train of thought.

However, if you do plan to make big-ticket purchases down the road where you will need to lend money from someone, opening up a credit account now to reduce your interest rate in the future is a good first step.

So I opened my first credit card at the suggestion of my mom. 

I was fresh out of college – literally by 1 or 2 days – and my mom and I sat down together to discuss credit cards.

I was 21 at the time, and she said it was time I opened a credit card so that I would have time to build my credit history before I make a potential car or home purchase. 

(Little did we know I would be buying my first home just 2 years later!).

Believe it or not, there are some credit accounts (especially store cards or certain types of credit cards) that may not report your credit activity to the 3 credit bureaus.

The fact of the matter is this: In order for a strong and well-rounded FICO score, you need to have your credit activity reported to the 3 credit reporting agencies. 

Who are the credit reporting agencies?

There are 3 credit reporting agencies.

These include:

The 3 reporting agencies each have a different credit score for you (some may have a higher or lower credit score on file). 

That’s normal.

Source: FTC

Now that we’ve discussed some of the factors that go into a good credit score, let’s get to the bottom of our 7-step guide and figure out how to rebuild credit fast.

How to Rebuild Credit [7-Step Guide]

the millennial money woman blog post "how to rebuild credit in 7 steps"

1. Pay on Time

It might seem cliché, but paying your bills on time is probably one of the first – and easiest – steps to rebuilding your credit score. 

However, if you are tight on money, then I have another ingenious way to rebuild your credit: By prioritizing the bills you pay in order of which bills are reported to the credit bureaus. 

Bills that will be reported to the credit bureaus include:

  • Credit Card bills
  • Student loan bills

Make sure you pay your bills every month.

2. Don’t Draw on your Credit Limit

Remember me talking about using your available credit limit sparingly?

As a quick refresher: You should always avoid drawing on your entire credit limit because you’ll be increasing your credit utilization ratio.

So, let’s take the following information into consideration:

Credit Utilization Ratio Worst-Case Scenario
Credit Limit
$3,000
Credit Balance
$3,000
Credit Utilization Formula: Total debt balance / Total available credit
$3,000 / $3,000 = 1 (or 100%)
Credit Utilization Ratio
100%

This is a worst-case scenario – you never want to max out credit cards so that your credit utilization ratio is 100%. 

Lenders don’t want to see that you are taking literally every cent of the lender’s loan. 

Not good.

Ultimately, it’s always a good idea to maintain the amount you put on your credit card in check.

First things first: If you do find yourself to be in a situation where you must max-out your credit card (or even worse, go over the maximum), then prioritize paying off the overage (the amount that’s over the limit) first – and as fast as possible.

3. Become an Authorized User

What if you don’t have any credit? 

Typically, if you don’t have any credit, it’s pretty hard to apply for a credit card – because you have not yet established yourself as a trustworthy credit card user. 

What do you do?

An option for you is to become an authorized user.

Let’s explore more about the benefits of authorized users below:

Benefits of Authorized Users
When the strategy works most effectively:
If your primary account holder has a credit account in excellent standing & pays their bills on time
How your credit is impacted as the authorized user:

Positive – When the primary user never misses bill payments
Negative – When the primary user misses bill payments

How the primary user’s credit score is impacted by your actions:
No impact on the primary user’s account
Minimum age:
18 years old

I would make sure that the person you ask to add you as an authorized user is someone you trust – and someone you know who will pay their monthly bills on time. 

This will only help you increase your credit score – and build your credit history.

4. Request for a Co-Signor

Another beneficial option you could pursue if you don’t have any credit is requesting for someone to be your co-signor when applying for a credit card.

A co-signor is like an extra layer of protection for your lender – in this case, likely your credit card company. 

Typically, co-signors can really help out with the loan application if the co-signor has a pretty solid credit history. 

Co-signors beware: If the person with whom you jointly sign decides to miss or skip a payment toward their credit card (for example) – then you are on the hook. 

This means you’ll have to take over payments – on something that you possibly never bought in the first place. 

Let’s take a closer look at the benefits of a co-signor:

Benefits of a Co-Signor
Can a co-signor help you get approved for a credit card?
Yes
Can a co-signor help you build your credit?
Yes
What happens if you fail to pay your share of the debt?
Your co-signor becomes responsible
How old do you have to be to have a co-signor?
18 years old
Minimum age to open a credit card?
18 years old
Credit card companies allowing for co-signors
  • Bank of America
  • US Bank
  • Wells Fargo
Credit card companies that typically don’t allow for co-signors
  • American Express
  • Capital One
  • Chase
  • Citi
  • Discover
Co-Signor responsibility
If you (the primary account holder) doesn’t make payments, the co-signor must take over payments

Now, you may be wondering what the difference between a co-signor and an authorized user is (as explained before). 

Let me explain, below.

Co-Signor Authorized User
Responsible for payments
Yes
No
Can use credit cards
Yes
Yes
Can request to have the account removed from credit history
No
Yes
Have access to the credit card account
No
Yes
Receive a credit card for the account
No
Yes
Can improve credit score?
Yes
Yes

Ultimately, make sure you and your co-signor trust each other and understand that one of you will be responsible for the other’s debt if that person fails to make a debt repayment.

5. Apply for a Secured Credit Card

Now, let’s assume the following scenarios apply to you:

  • You have no credit history
  • You have a damaged credit

Let’s answer the question on how to rebuild credit fast in this situation: By applying for a secured credit card.

Lenders love guarantees. 

If you deposit $1,000 in a security deposit account for your lenders in case you default on a credit card payment – chances are, your lenders will likely give you access to a credit card.

Secured Credit Card
What is your secured credit card limit based on?
  • Income
  • Ability to make payments
  • Amount of your security deposit (the higher, the bigger the credit limit)
Is a secured credit card the same as a prepaid credit card?
No
What is my deposit’s main purpose?

Collateral
(money that is pledged to your lender in the case you cannot make your regular payments)

Does the secured credit card actually say the word “secured”?
No – you can go incognito with a secured credit card
Benefits of a secured credit card
  • Rebuild credit
  • Establish credit
Fastest way to rebuild/establish credit using a secured credit card?
Just make your monthly payments on time. You may be upgraded to an unsecured credit card and receive your security deposit back if you prove you are reliable.
Minimum age:
18 years old

The benefit of a secured credit card is that you don’t have to rely on another person – as with the co-signing or authorized user strategies.

6. Consider Using Self Lender to Build Credit

Let’s say you like the idea of a secured credit card but still want to do some more digging on your options before you commit to anything. 

Let’s discuss how a self lending account can help you build credit.

Below are 2 self lending companies I would suggest to use if you are considering this plan of action:

Let’s take a closer look at what these self lender accounts can (and cannot) do for you:

Self Lender Accounts
Deposit funds
You give the lender an upfront deposit, which your lender then places in an FDIC-insured CD
Your loan
Your loan is issued for the same amount as your CD deposit
Your loan payments
You make monthly loan payments
When will your loan payments stop?
Your loan payments will stop once you’ve paid the total of the value of the CD deposit
What happens when I satisfy my loan payments?
The CD amount is released to you
How much is my loan amount?

Could be many different amount options, including:

  • $520
  • $545
  • $1,000
  • $1,663
What is my loan term?
Can be anywhere from 12 to 24 months
Will my credit be checked before I apply to a self lending company?
No
What if I miss a payment?
Your CD deposit will be held as collateral
Administrative fees

Can vary

  • Typically, from $9 to $15
Are there late fees?

Yes

  • Could be anywhere from $1,25 to $7.50

Let me tell you this: If I had known about programs like Self or Kikoff in college, I would have gone ahead and started these programs when I was 18 – and not waited until 21 when I was fresh out of college.

I hope you learn from these mistakes and start as early as possible to build your credit history.

Go get em!

7. Consider Debt Counseling 

If you’ve had your debt struggles before and don’t necessarily trust yourself when it comes to opening up credit card accounts, it might be worth considering going to some debt counseling agencies.

Have no fear – chances are that these debt counseling agencies are free or come at a minimal fee.

Below are 3 debt counseling agencies that I would suggest contacting if you feel you are having trouble with debt:

the millennial money woman blog post "free debt counseling agencies"

Keep this in mind: There are so many different free credit card and debt counseling agencies out there. 

I would also suggest you consider researching your local choices. 

Community Foundations may have some resources for you as well when it comes to debt counseling hotlines or call centers. 

All you have to do is ask for help – and chances are, help will come your way.

So now the question begs…

How long does it take to Rebuild Credit?


It’s certainly not easy to rebuild credit fast after you’ve had several dings on your score reports. 

In most cases, I would say that it takes about 3 to 6 months to rebuild your credit – depending on the severity of why your credit dropped in the first place.

For example, if you missed multiple payments and possibly even filed for bankruptcy, then it would not be a surprise for your credit repair to take a longer time than if you simply missed 1 or 2 bill payments. 

If you missed 1 or 2 bill payments, chances are, your credit score could be improved 1 or 2 months after you notice a “ding” to your credit score.

Keep in mind that depending on severity, some of the negative information may stay on your credit report for years. 

Take a look below:

Number of Years Negative Information Stays on Credit Report
Credit Inquiries
2 Years
Late & Missed Payments
7 Years
Collection Accounts
7 Years
Chapter 13 Bankruptcy
7 Years
Chapter 7 Bankruptcy
10 Years

Time really does heal, because as time passes by, the negative impact on your credit score will be diminished.

What Happens to my Credit Score if I File for Bankruptcy?


Although your current debt load will either be entirely discharged or would be greatly reduced by filing for bankruptcy, many maintain the mistaken belief that bankruptcy would improve their credit rating – because the debt is eliminated.

This belief is mistaken.

Below are a few facts regarding filing for bankruptcy and how bankruptcy could negatively impact your credit score:

  • Bankruptcy is reported on credit scores for up to 10 years for Chapter 7
  • Bankruptcy is reported on credit scores for up to 7 years for Chapter 13
  • Your credit score could plummet by 200 points or more after filing 
the millennial money woman blog post "the impact of bankruptcy on your credit score"

Because bankruptcy can take a large chunk out of your credit score, it’s going to take some time to increase your credit rating after filing for bankruptcy.

"One of the easiest ways to improve your credit score directly after a bankruptcy is simply by making timely debt payments."

As I mentioned earlier, you won’t see an immediate uptick in your credit score. It will take time.

However, by starting on making timely debt payments from an early stage, you’re beginning to practice healthy finance habits – and that’s a huge benefit as you rebuild your financial life.

How to Rebuild Credit after Bankruptcy 


There are many different steps you can pursue to rebuild credit after a bankruptcy. 

Some of these steps could include:

  • Never miss debt payment due dates
  • Review your credit report to ensure all bankruptcy debt discharges have been accurately recorded
  • Only take on as much debt as you can pay off 
  • Make it a habit to regularly review your credit reports and credit scores
  • Stick to your budget
  • Make smarter financial decisions
the millennial money woman blog post "how to rebuild credit after bankruptcy"

The most important tip is this: To rebuild your credit after bankruptcy, one of the key items to make sure your bankruptcy has been recorded accurately on all credit reports. 

That means, if your bankruptcy discharged your debt obligations by $100,000 – make sure your credit report illustrates a $0 balance next to those would-be debts.

How to Rebuild Credit: Closing Thoughts


Rebuilding credit after a credit score plunge or building credit when you have no credit can be a pretty daunting task – and it takes time.

“Sadly, so many lenders base the interest rate charge, in part, off of how long the account has been open.”

If you are considering purchasing a big-ticket item such as a house or a car within the next few weeks – or months – and still have a low credit score, it might actually not be the best time to purchase that item now because you’ll be paying such an exorbitant interest rate.

Here are the major lessons I learned as I embarked on my journey to build credit:

  • Open a credit card as early as possible 
  • Understand how to use credit cards wisely
  • Sometimes it’s better to forgo big-ticket purchases if your interest rates are very high

Unfortunately, building credit is no easy task – especially if you are a university or college student. 

That’s why it’s important to start building credit through some of the alternative viable options:

  • Becoming an authorized user
  • Applying for a secured credit card
  • Using self lender companies 

There are options out there to help anyone rebuild or build credit – it’s just a matter of looking for the options and asking the right people to help. 

Start working on building your credit early – your bank accounts will thank me later!

How have you built your credit during your early to mid-20’s?

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Fiona Smith
Fiona Smith
The Millennial Money Woman was founded by Fiona Smith. She holds her Master of Science Degree in Personal Financial Planning and has co-founded a local non-profit community teaching financial literacy to young professionals.

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