7 Strategies to Rebuild Your Credit

What is a low credit score?

A low credit score typically refers to a FICO score of 580 or below. While having a lower credit score can make getting approved for loans or credit cards more challenging, it's more common than you might think. Life events like unexpected medical bills, a divorce, or filing for bankruptcy can impact your score, as can issues with your student loans or missed payments. Rebuilding your credit can take time, but addressing the issue head-on is the most effective approach.

How to rebuild your credit

No matter why your credit score took a hit, you can start rebuilding it by tackling any issues in your credit reports and building good credit habits. Here are 7 strategies to get you started.

1. Review your credit reports

Understanding your current credit status is the essential first step in rebuilding your credit. You can check your credit report from each of the three major bureaus—Equifax, Experian, and TransUnion—once a year for free at AnnualCreditReport.com.

2. Make on-time payments

To boost your credit score, pay your bills on or before their due date to avoid late fees and negative marks. For credit cards, aim to pay your bill in full each month. If that's not possible, at least make the minimum payment and work on reducing your balance as quickly as you can.

3. Keep your credit utilization low

Your credit utilization ratio is the percentage of available credit you currently use. Aim to use 30% of your available credit limit at most. This shows lenders that you can stay on top of your spending, which can help raise your credit score.

4. Avoid closing accounts

Closing credit cards or other accounts can lower your available credit and hurt your credit score. It can also make lenders see you as a higher risk. So, it's usually better to keep your older accounts open unless the risk of keeping it open outweighs the risk of closing the credit line.

5. Limit new credit applications

Having multiple credit inquiries in a short time can lower your credit score, which can make it harder to get approved for different types of credit and may lead to higher interest rates. So, it's best to apply for credit only when you need it.

6. Ask a trusted family member or friend for support

If you're having trouble getting approved for credit, consider asking a friend or family member for help. They can improve your chances of securing a loan or credit card by acting as a cosigner, especially if they have a strong credit history. Just keep in mind that any missed payments will affect both your credit and theirs.

You can also ask to be added as an authorized user on their credit card, allowing you to benefit from their positive credit history without taking on legal responsibility for the debt. Both options can help boost your credit as you work to rebuild your financial standing.

7. Try a secured credit card

A secured credit card is a type of credit card that requires you to make a refundable cash deposit upfront. Unlike unsecured cards, where your credit limit depends on your credit history, a secured card's limit is equal to your deposit. For example, if you deposit $100, your credit limit will be $100. These cards are ideal for those looking to rebuild their credit because they often don't require a traditional credit check to apply, which makes them easier to get.

How to apply for a secured credit card

If a secured credit card sounds like the right choice for you, follow these steps to apply.

Step 1: Determine your budget

Secured credit cards require a cash security deposit upfront, so determining how much you can afford is crucial. If you're unsure how much to put down, consider starting with a smaller deposit, like a hundred dollars. As you build confidence, you can add more to your deposit to increase your credit limit over time.

Step 2: Do research on different cards

When selecting the right card, compare deposit requirements, fees, interest rates (APRs), rewards, and potential upgrade paths. To get started, you can contrast card features to find the best fit for you.

Step 3: Choose a secured card

When choosing between credit cards, it’s best to choose the one that suits your unique needs and budget.

If you're considering a secured credit card with opensky, all three of our options offer an 89% approval rate¹. Cardholders typically see an average 47-point increase in their credit score within the first six months².

Step 4: Submit your credit application

You can apply for a secured credit card online through the card issuer's website. Be sure to have this information on hand:

• Full legal name
• Social security number (SSN) or individual taxpayer identification number (ITIN)
• Street address
• Phone number
• Employment status
• Annual income before taxes
• Housing costs (rent or mortgage)

Step 5: Fund your card

Once you're approved, fund your card with your cash security deposit. You might also have to pay additional fees, such as application, processing, or annual fees, so make sure to keep that in mind when you open your account.

How long does it take to rebuild credit?

It can take a few months to several years to rebuild your credit, depending on your starting point and the steps you take. Negative information typically stays on your report for up to seven years, and bankruptcies for up to 10 years. But don't worry—your credit score will improve over time with consistent, good habits.

‍

¹ Based on the last 6 months, opensky Secured Visa® Credit Card average approval rate is 89.01%. Individual approval results may vary.

² Based on the first half of 2024, 66% of opensky customers increase their score by 47+ points after 6 months.