By Megan Doyle | American Express Credit Intel Freelance Contributor
4 Min Read | January 17, 2020 in Credit Score
A low credit score can make your life hard. It can hurt 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.
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.
Payment history is a major component of your credit score.1 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).2 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.
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.
Many credit experts recommend keeping that ratio below 30% to show responsible behavior.3 But if you make many large purchases or if your credit limit is particularly low, you could still have a high utilization ratio. So, some people pay their bill twice a month instead of monthly to keep that ratio low.4
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.6 Consistent, responsible credit card use can be key to rebuilding your credit.
One in four consumers identify errors on their credit reports, according to the Federal Trade Commission’s most recent report on the subject, published in 2013.7 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.8
Late credit card payments, high spending levels, and opening too many credit card accounts in a short period of time can hurt 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 Does Payment History Affect Your Credit Score?” NerdWallet
2 “How to rebuild your credit,” Consumer Financial Protection Bureau
3 “How to Rebuild Credit,” Experian
4 “Using a Credit Card to Build Your Credit,” NerdWallet
5 “How to Rebuild Credit,” Experian
8 “How to Rebuild Your Credit Using Credit Cards,” Credit Sesame