Financial Literacy

6 Steps to Rebuilding Credit


If your credit isn’t quite where you’d like it to be, read through these 6 steps that you can take to rebuild your credit score!

Written by BALANCE & Nicolette Fee

Having a good credit score is a crucial building block to financial stability and security. Without a strong score you might experience trouble making large equity building purchases, like a home or a car, or receive higher interest rates that will cost you even MORE over time. If your credit isn’t quite where you’d like it to be, read through these 6 steps that you can take to rebuild your credit score:

Know Your Starting Point
Obtain a copy of your credit report from all three credit bureaus so that you have a clear understanding of what it says about you and your credit history. Who are the three bureaus? Equifax, Experian, and Transunion – and they all might report your score just a bit differently.

Develop a Plan
If there are errors on your credit report, have the credit bureaus investigate and correct them. Set goals and time frames for future major credit endeavors.

Bankruptcy Today—Homeowner Tomorrow
If you recently filed bankruptcy or if you don’t have any open credit, start building credit as soon as possible. Try to obtain several new accounts or sources such as a secured credit card, department store cards or being put on someone else’s account as an authorized user. The lower your starting credit scores, the more your need to have positive items reporting.

Only do this, however, if you can remember the following:

  • Never carry over balances (pay balances in full) as the interest rates are very high.
  • Purchase one thing on credit that you would normally pay cash for (say for $20.00), and pay the bill as soon as it arrives. If paid in full during the grace period, typically between 21 to 30 days, no interest is charged. Follow this practice consistently and NEVER miss a payment.

Keep Older Accounts Open
If you already have credit open, keep your oldest accounts. Even if there were late payments in the past, pay them on time now. And remember, the older the account, the more it will help your credit.

Make Your Payments on Time

Pay Down Your Credit Card Balances 
Target to have the total amount of outstanding revolving debt at 30% or less of the total available credit limits. (ex: if your credit limit is $1,000, keep balances under $300)

Once new positive sources are created, avoid all unnecessary inquiries. Don’t fill out any additional applications for credit.

Remember that for home purchase or refinances, old collections/judgments/unpaid taxes/unpaid child support must be dealt with. Look at the date of the item, compare to statute of limitations for that item, and plan a strategy to address each.