When you first start to “rebuild credit scores” it might be difficult. But once you build momentum and start to see results, you’ll be coasting your way to a good credit score in no time.
Taking a multi-strategy approach is best to rebuild credit scores. But getting started with the task of rebuilding credit scores is not easy. In the beginning you may find it frustrating but once you build momentum and start to see results — you’ll rebuild credit scores in no time.
A good credit score ranges from 660-719. An excellent credit score is 720 and above. Both good and excellent credit practically guarantees approval with the best interest rates as long as you do not carry too much debt. Adding positive credit accounts to your credit history is a pretty simple way to rebuild credit scores. In addition to proving to new creditors and lenders that you can handle credit responsibly.
Here are a few ways to rebuild credit scores by using credit cards. But keep in mind when adding credit accounts you must keep balances low. FICO credit scoring formula likes to see as much space as possible between your credit limit and account balances. The rule of thumb is to maintain debt ratios at 10% or less of your available credit limits.
While it does not insure you have the highest credit scores, maintaining low credit card balances insures your score won’t be penalized for using too much of your available credit.
7 Strategies to rebuild credit scores
1. Add an unsecured credit card
If your credit report contains mostly negative information it will be difficult to improve your scores. Get an unsecured credit card that will report on-time payments to the 3 major credit bureaus. Many credit cards now offer monthly free credit scores to cardholders which can help keep you on track with rebuilding credit scores.
2. Add a secured credit card
Depending on your credit score, it may not be possible to get an unsecured credit card. Secured credit cards have the same benefits as unsecured credit cards and report payment history to the credit bureaus. The OpenSky® Secured Visa® card is designed to help individuals build or rebuild their credit. This full-feature secured Visa to rebuild credit offers worldwide acceptance and a credit line based on a security deposit, rather than on a credit score. The security deposit can be as low as $200 up to $3,000.
Open a Chime Spending Account to be eligible for the no credit check Chime Visa® Credit Builder Card. All you need is a Chime Spending Account and qualifying direct deposits of $200 or more to open the Visa credit card that is designed to work with the Chime Spending Account so that you can move money instantly from your checking account to the credit builder account. No upfront money is needed. There are no annual fees or interest charges. Increase your credit score by an average of 30 points with Chime Credit Builder1 with monthly reporting to the three major credit bureaus. Everyday purchases can help build credit with regular on-time payments.4
3. Get a Retail Credit Card
Retail credit is typically easier to qualify for than other revolving credit options; however, the interest rates may be slightly higher than credit card interest rates. You have to weigh the pros and cons and decide if a higher interest rate is worth it to build credit. Fingerhut is an established online retailer offering more than 20,000 name brand products from electronics to furniture. Find out if you are pre-approved for a Fingerhut credit account.
4. Authorized user credit
Family members with great credit can help you boost your credit scores with authorized buyer credit. A credit card company can allow an account holder to add you as an authorized user on an established account. The account holder’s information, including payment history, account balance and credit limit becomes part of your credit history. Authorized user accounts can instantly improve your credit scores and offer those rebuilding credit an established account to add to their credit history.
5. Add an Installment Loan and make on-time payments
Adding an installment loan such as an auto loan, personal, mortgage or even a student loan to your credit files will give your credit score a tremendous boost. The credit scoring system rewards consumers who have a good credit mix and an installment loan will give you a good credit mix. Installment loans require multiple payments over time which helps create a history of repayment. When timely payments are made it may help improve credit scores. Quickly qualify for a personal loan, even with less than perfect credit. Apply online for a personal loan.
6. Request a Deletion for settled or paid negative debts
If you pay a collection or settle a debt make sure you obtain a deletion and not a “paid collection” entry. This also applies to paying a debt directly to the creditor. Paid collection entries or settled accounts do not raise your score. See Get Deletions. Building credit may also involve disputing negative credit items.
7. Decrease credit card balances – use less of your available credit
Amount of debt owed is 30% of your credit score which is significant when you are attempting to improve and rebuild your credit scores. Keep your credit balances within 10% or less of your total credit limit. Let’s say you have a credit card with a $5,000 limit and your balance is close to that limit — Your credit scores are going to suffer because you have a high balance to limit ratio. Decreasing your balance to 10% or less of your credit limit will increase your credit scores immediately. The great thing about this technique is that it works whether it is a $5000 limit credit card or a $500 limit credit card. Your overall credit score will increase by keeping your balances within 10% of your credit account limits.
Temporary hit to scores due to credit inquiries
Rebuilding credit involves adding positive credit to your files; however, once you are approved for a few new credit accounts stop seeking new credit. Hard credit inquiries can take between 5-10 points off your credit score. Limit the number of inquiries in a 12-month period. If possible, spread the inquiries among the three major credit bureaus.
Here is how to spread inquiries across 3 credit bureaus:
Before applying for new credit try calling the credit card issuer, bank or lender and inquire as to which credit bureau or bureaus they pull your credit report from. Most lenders do not mind revealing that information. If you have a lot of inquiries on your Experian credit report then apply for lenders that use Equifax or Transunion instead.
Pay your obligations by the due date
Only add new credit if you are able to make timely payments. A late or missed payment can drop a good credit score by as much as 100 points. It may not make sense but if you already have negative entries on your credit report adding more will not hurt as much and your score may only drop by 30 points. Regardless, paying on time can raise your credit score because payment history constitutes 35% of your credit score.