Chapter 8

How To Rebuild Your Credit (5 Actionable Strategies)

Written by Cheri Read

If you’re trying to rebuild your credit after taking steps to repair your past credit mistakes, you’re going to have to apply a few tactical strategies to finally attach some “good credit” to your name. 

The five strategies we recommend for rebuilding your credit are as follows:

  • 1
    Borrow someone else’s credit
  • 2
    Become an authorized user
  • 3
    Open a store card
  • 4
    Borrow from yourself
  • 5
    Open a secured credit card

Rebuilding your credit is a long-term play but it’s a critical part of the process in turning your credit life around, so let’s begin.  

1. Borrow someone else's credit

If you have a friend or relative with good credit, ask them to co-sign for you. 

Often this is the best way to get started, and you might get a great interest rate—you can apply for personal loans, car loans, and some credit cards with co-signers. 

And as long as you make your payments on time, you’ll keep debt collectors and your relative off your back.

2. Ask someone to add you to their credit card

As an authorized user on someone’s credit card, you can also reap the benefits of their good habits.

Your significant other or parent may be willing to do this for you in order to help you rebuild your credit, and if they’re allowing you to use their card anyway, it may not be too big a leap for them to make.

Just make sure to check with their issuing company to find out if they report authorized user activity to the bureaus. And of course, use it responsibly: the whole point is to pull your credit score up, not drag someone else’s down.

3. Open a store credit card

Retail credit cards can be much easier to get approved for than major lines of credit and opening one could boost your credit score, so long as you make your payments on time and are careful not to max them out or accumulate large balances.

These store credit cards will add to your available balance and increase your credit utilization ratio, which is the good news. They also come with some decent perks like store discounts, free shipping, and other exclusive benefits.

But it’s important to keep in mind a few drawbacks with retail cards:

  • Interest rates are usually much higher than regular credit cards
  • They have limited usability, as you can often only use them at one store
  • They count as a hard inquiry on your credit report, which could ding your score 1-5 points
  • Account limits are usually much smaller than regular credit cards

And as credit expert Scott Henderson warned us: “Don’t sign up for a retail credit card just because you’ll save 10%.”

But if you can keep your balances low and pay your bill every month, they will help you build new credit.

4. Borrow from yourself

If you have a solid income to prove you can make loan payments, then you may want to consider something called a “credit builder loan”, which have no credit requirements at all.

Where can you get a credit builder loan?

Try your local credit union or an online provider like Self Lender, where you can apply for the loan, and if approved, the money you borrow will be held in a bank account with the lender as a security deposit, and will not be released until it is entirely paid off.

The lender, in turn, reports your credit activity to the three bureaus—and if you make on-time payments, they can significantly boost your credit score.

Of course, if you fail to make timely payments, this type of loan will hurt you rather than help. So be sure you only take out loans you can afford to pay back on time.

5. Open a secured credit card

Secured credit cards are another great way to build a credit history, and they work just like their name suggests—once approved for the card, you will fund your account with a specified amount of money, and draw it down with purchases you make on your card. 

Most secured cards start out with a $300 limit, but some allow you to deposit as much as you want from the very beginning.

Your payment activity is then reported to the credit bureaus, building your credit history fairly quickly.

After a year or so of on-time payments, most secured card companies switch these accounts to unsecured cards, at which point you’ll get your deposit back, sometimes with a little interest.

One caveat to keep in mind: interest rates and fees can be high on secured credit cards, so do your research to make sure you get the best deal.

Mistakes to avoid when rebuilding credit

When you’re first starting out, you may decide to implement all the credit-building advice at once. But if you’re not careful, you can damage your credit and create a whole new problem for yourself.

Need help repairing your credit? A credit repair company may be able to help—check out our guide to choosing the best one.

Don’t be afraid to step out and build your credit, but try to avoid making these common.

Missing payments

You probably understand at this point in your credit journey how important on-time payments can be—just one missed or late payment can significantly hurt your score.

And if you’re at the point where you’re trying to repair your credit, you probably don’t have a lot of open lines to cushion the blow.

Setting up automatic drafts for these payments can save you time and hassle as long as you’re good at keeping up with your bank balances.

And if you can pay off your balances in full, do it. DeNicola told us, “There’s a myth that having a balance on your credit cards can help you build credit. Don’t believe it! Instead of throwing money away, pay your bill in full if you can afford it.”

Being afraid of credit

It’s easy to get hung up on the risks of having credit, especially if you’ve been burned before.

But the bottom line is that building credit and having a good credit score is a key part of having a healthy financial life, and could save you lots of money on loans and interest.  

As we’ve discussed in this guide, just make sure you use your credit responsibly and you will likely never have a problem.

Opening too many accounts at once

It’s true the more credit lines you have open, the higher your available credit is — but if you apply for a lot of accounts all at once, your credit score can take a hit from all the hard inquiries.

Plus, having too many credit accounts can be dangerous if you’ve had trouble managing credit in the past.

Our advice: open one or two in the beginning and focus on making those payments on time every time. Then, when you feel you’re ready, you can apply for other types of credit.

Maxing out credit cards

As we mentioned we we talked about credit utilization, to get a high FICO score, you need to have more available credit than you’re spending.

Use the calculator we shared earlier and try to keep this number below 30%.

Wrapping up

Building or repairing your credit doesn’t have to be difficult—the key is to tackle one area at a time until you’ve dealt with every factor.

And the most important first step is to make a commitment at this point to pay your debt on time from now on.

Certainly, things do come up, and there may come a time when you have to miss a payment.

But it’s always more favorable to deal with creditors if you have a solid history with them, and easier to get help making those payments if your FICO score indicates you’re a low credit risk.