How to Rebuild Credit
Bills Bottom Line
To rebuild credit, get every account current and keep it that way. Payment history is the biggest factor in most credit scores. A late payment, collection, or charge-off counts for less over time, even while it's still on your report. And if your report has errors, you can dispute them yourself, for free.
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You've been through a rough stretch: late payments, a collection, a charge-off, a settled debt, or bankruptcy. Your credit report, the record lenders check before they lend and the basis of your credit scores, can keep a setback on file for years. But every on-time payment you make from now on can show up there, too.
Credit scores aren't set in stone, and you can rebuild yours with time. Here's how to rebuild credit without taking on more debt than you can handle.
Bills is not a Credit Repair Organization and does not provide, or offer, services or advice to repair, modify, or improve your credit.
The best way to rebuild credit, step by step
You can rebuild credit in just a few steps. Paying on time matters most: A single payment 30 or more days late can seriously hurt your score, and the damage grows the further behind you fall.
1. Check your credit reports and dispute errors
Get your report from each of the three nationwide credit bureaus, Equifax, Experian, and TransUnion, free once a week at AnnualCreditReport.com. Checking your own reports won’t affect your scores.
Look for errors that could drag your score down, such as accounts that aren't yours, payments wrongly marked late, a debt listed twice, or wrong balances. Dispute each one with the bureau and with the company that reported it, and include copies of your documents. The easiest way to start is to click the Dispute button while viewing your credit report online. If the same error appears on more than one credit report, you have to dispute it separately with each bureau reporting it.
The bureau generally has 30 days to investigate. For step-by-step help, see our guide on how to dispute your credit report.
2. Pay every bill on time
Payment history makes up 35% of a FICO Score and 40% of a VantageScore 3.0. Creditors generally don't report a payment as late until it's at least 30 days past due.
Consider setting up automatic payments through your creditor or bank account. This could help you avoid forgotten due dates when life gets busy.
If you're about to miss a payment, call the creditor right away and ask about hardship options. This might mean a reduced or postponed payment. If you can't work out a plan, a nonprofit credit counselor may be able to help.
3. Bring down your credit card balances
Next, lower your credit utilization. Utilization is your credit card balances divided by your credit limits, both overall and on each card. A $100 balance on a $2,000 limit is 5% utilization.
Lower is better—aim for utilization in the single digits when possible. You may have heard 30% is the line to stay under, but FICO Scores don't change suddenly at that point. You don’t have to carry a balance to have good FICO Scores. That's a myth.
When there simply isn't room in the budget, a second job, extra hours, or part-time side-hustle might be the right move. It isn't forever, just until you get your debts where you want them.
4. Add one new account that reports to the bureaus
If you don't have any credit cards or loans reporting your on-time payments, adding one should help. You likely have options even if you've been denied credit before.
| Account | How it typically works | Who repays |
|---|---|---|
| Secured credit card | A cash deposit sets your credit limit | You, each month |
| Credit-builder loan | The loan is held in a savings account while you repay it, then paid out to you | You, over six to 24 months |
| Authorized user | Someone adds you to their credit card account, which then shows on your report | The account's owner |
Before you open anything, ask whether the company reports to all three bureaus. Creditors aren't required to (though most do). Choose a secured card with no annual fee and pay it in full each month to avoid interest. If you go the authorized user route, choose someone with impeccable credit; the owner's late payments can show up on your report, too.
How to rebuild credit after a setback
The steps above work for all kinds of credit setbacks, but certain situations may require special attention. Consider these moves.
Debt settlement
Settling a debt means the creditor agreed to accept less than the full balance to get rid of your debt. After your final payment, check that the account shows you no longer owe anything, and dispute it if it hasn’t updated within a month or two.
A "settled" status still counts as negative, but it tends to do less harm than an unpaid debt. And its effect fades over time, especially as you rebuild credit after the settlement with a steady record of on-time payments.
Bankruptcy
You can start rebuilding your credit after bankruptcy as soon as you receive your discharge (the court order ending your obligation to pay the covered debts). Discharge usually comes about four months after filing for Chapter 7, or once you finish your repayment plan in Chapter 13.
A month or two after your discharge, check that each account included in the bankruptcy shows "discharged" with a $0 balance. While you’re in a Chapter 13 plan, talk to your trustee before taking on new debt.
Charge-off
A charge-off means the creditor wrote off the debt as a loss, but you still owe it. Paying in full is better for your credit than settling, and settling beats leaving it unpaid.
Confirm the debt is yours and get any agreement in writing before you pay anything. Before paying an old debt, look into your state's statute of limitations, the time a collector has to sue. The debt itself doesn’t go away, but after the statute of limitations passes, the creditor loses the right to sue you for payment. In some states, a payment restarts that clock.
Collections
A collection account is a defaulted debt the creditor handed off to a debt collector. Paying it helps under newer scores: FICO Score 9 ignores paid third-party collections, and VantageScore 3.0 and 4.0 ignore paid collections. Older credit scores, including the FICO Scores many mortgage lenders use, still count them. You can’t ask a lender to check a different credit score that might be higher. Lenders use what they use.
Once you’ve paid, you can ask the collector to remove the collection as a goodwill gesture, though this is rarely effective. That’s different from "pay for delete," where a collector agrees to remove the collection in exchange for your payment. According to the CFPB, deleting accurate negative information goes against credit reporting industry rules.
How long each setback stays on your report
Most negative items stay on your report up to seven years, though the rules can be different for some types of bankruptcy. Here's a quick look:
| Setback | How long it can be reported | When the clock starts |
|---|---|---|
| Settled account | Up to seven years | The original delinquency date |
| Collection | Up to seven years | 180 days from date of delinquency |
| Charge-off | Up to seven years | 180 days from date of delinquency |
| Chapter 7 bankruptcy | Up to 10 years | The filing date |
| Chapter 13 bankruptcy | Up to seven years | The filing date |
If an item is still on your report past its limit, you can dispute it with the credit bureau.
How long does it take to rebuild credit?
There's no set timeline, but every month counts. You don't need to wait for every negative item to age off your reports before your score can start to recover. Recent information is weighted more heavily than older negative information, so an old late payment matters less with each month you pay on time.
Your starting place also matters. The higher your score starts, the longer it could take to recover from a major setback. Generally, six to 12 months of on-time payments should result in noticeable improvement to your credit scores. Full recovery could take years.
What is the quickest way to rebuild credit?
The fastest path depends on the source of the problem. If your score was hurt by high credit card balances, paying them down could cause your scores to bounce back when your new balances are reported to the credit bureaus.
For credit impacted by negative items like late payments, collections, or bankruptcy, there's no shortcut. Accurate negative items have less impact as they age, but unless a creditor agrees to remove one as a goodwill gesture, those items stay on your reports until they age off.
And no, credit repair companies can't remove those items sooner, regardless of what they might advertise. Plus, anything a credit repair company can legally do, you can do yourself for free. Federal law bars credit repair companies from charging you before they've finished the work. If one charges you upfront, report it to the Federal Trade Commission at ReportFraud.ftc.gov.
Signs of a credit repair scam
- A demand for payment before any help
- Instructions to let the credit repair company handle all contact with the credit bureaus
- Advice to dispute information you know is accurate
- An offer of a new credit identity
Moves that won't help
There's a lot you could do to help rebuild your credit, but some things won't move the needle.
- Using cash, debit, or prepaid cards. You aren't borrowing, so there's no repayment to show.
- Taking out payday loans. On-time payday loan payments typically aren't reported to the nationwide credit bureaus. Avoid these loans because they are very expensive and could make your financial situation worse.
- "Buy here, pay here" car loans. These dealers often report only late payments.
- Applying for a bunch of credit at once. Scoring models look at how recently and how often you apply, so a cluster of applications could lower your score.
- Closing credit cards. If you close a credit card while you still have balances on other cards, your utilization ratio could go up, and that tends to have a negative effect on credit scores.
Your credit score is fluid, and it reacts to what you do. Make the right moves and your score could be on the road to recovery.
Bills Action Plan
- Get your reports this week. Pull all three free at AnnualCreditReport.com, and dispute any error you find.
- Bring every account current. Pay each bill by its due date, call the creditor before a due date you can't meet, and put extra money toward credit card balances.
- Add an account only if you have no reported accounts. Choose a secured credit card, or ask your bank or credit union about a credit-builder loan.
For more info about budgeting and the rest of your money, read our personal finance guides.
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