4 Min Read | December 21, 2022
8 Ways Credit Cards Can Help You Rebuild Your Credit
Credit cards can help you build your credit, but also lower your score if not used responsibly. Learn how you can rebuild your credit, starting today.
At-A-Glance
A low credit score can keep you from achieving key financial goals.
But a credit card can help you build your credit.
Consistent, responsible credit card use can help rebuild credit scores.
A low credit score can make your life hard. It can impact your ability to buy a house, lease a car, rent an apartment, or make other important purchases. It can even affect your car insurance premium. But if you’re haunted by past mistakes that led to a low credit score, take heart. Rebuilding credit can put your financial goals back within reach – and credit cards can help.
One of the most straightforward ways to rebuild your credit is to use a credit card. That approach might “feel” wrong, especially if missed credit card payments or high credit card debt lowered your score in the first place. But following these eight guidelines could put you back on the path to a higher credit score.
1. Find the best credit card to rebuild your credit.
If your credit score is low, getting a credit card for rebuilding your credit may be your first challenge. But there are options. And, once in hand, you can use that card to work toward rebuilding your credit.
For people with low credit scores, there are credit cards designed to help build credit from scratch. They might not come with any bells and whistles, but they can be good starting points. But if your credit score is 500 or less, you may need to enlist a cosigner or apply for a secured credit card. Secured cards require a refundable security deposit, which becomes your credit limit. You’re sort of borrowing from yourself, but consistent charging and making payments on time show that you’re financially responsible and begin to rebuild your score.
If you’re getting your first credit card, you might be able to find one with a 0% introductory annual percentage rate (APR). This can help you avoid the potential perils of accrued interest, if only for a few months.
2. Stick to a budget and treat your credit card like cash.
To rebuild your credit, you must use credit. But credit cards also make it easy to overextend yourself. Creating a budget and using your credit card only for purchases you can afford can help you rebuild your credit while avoiding debt.
3. Always pay on time.
Payment history is a major component of your credit score. To help you make credit card payments on time, most issuers offer text or email reminders, and some let you enroll in automatic payments. But it’s still a good practice to make sure those automatic payments are going through, according to the U.S. Consumer Financial Protection Bureau (CFPB).1 And if you send your bill payments by snail mail, be sure to send them a few days before they’re due to ensure they arrive on time.
4. Pay your credit card balance in full.
Paying your credit card balances in full each month prevents interest or finance charges from accruing. But there’s more it can do: Paying in full can also help you rebuild your credit score. This is because your credit utilization ratio – your credit card balance as a percentage of your credit limit – affects your credit score.
Keeping your credit utilization ratio below 10% – in addition to paying bills on time – can benefit your FICO score.2 But if you make many large purchases or if your credit limit is particularly low, you could still end up with a high utilization ratio during some parts of the month. So, some people pay their bill twice a month instead of monthly to keep that ratio low.
5. Avoid applying for many credit cards at once.
Applying for too much at once can lower your score. This applies to getting a new card to transfer balances at a lower interest rate and to opening a new store card account to get a discount, the CFPB notes.
6. But don’t close accounts, either.
The age of your credit card accounts also affects your credit score. The longer your credit history, the more predictable your debt and credit management is to lenders.
7. Be patient.
Rebuilding your credit isn’t an overnight process. It can take several years to raise your credit score. And if you’ve made credit mistakes – missed payments or maintained delinquent accounts – it can take anywhere from 7 to 10 years before your credit report absolves you of all those mistakes. Consistent, responsible credit card use can be key to rebuilding your credit.
8. Periodically check your credit report for errors.
Thirty-four percent of consumers who participated in Consumer Reports’ 2021 Credit Checkup survey found at least one error on their credit report.3 About 80% who filed disputes were able to get their reports modified. You can get one free yearly credit report from each of the three main credit bureaus: Equifax, Experian, and TransUnion. Keep a keen eye out for errors, such as unauthorized inquiries into your credit or accounts you didn’t open.
Did you know? As an added security measure to help protect against fraud, American Express reports a reference number to credit bureaus – instead of your actual account number.
The Takeaway
Late credit card payments, high spending levels, and opening too many credit card accounts in a short period of time can impact your credit score. But consistent, responsible card use can help you rebuild your credit and get you back on track to meeting your financial goals.
1 “How to rebuild your credit,” Consumer Financial Protection Bureau
2 "What Should My Credit Utilization Ratio Be?,” myFICO
3 “A Broken System: How The Credit Reporting System Fails Consumers And What To Do About It,” Consumer Reports
Megan Doyle is a business technology writer and researcher whose work focuses on financial services and cross-cultural diversity and inclusion.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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