Rebuilding Bad Credit History: Where to Start

If you have made bad financial decisions in the past, your credit scores might be low. What’s worse, you cannot instantly delete your past negative credit. The good news is that you can rebuild a better credit history and continue to improve it.

This post walks you through the whole process of rebuilding a bad credit history. But before we get to that, what are the benefits of a good credit score? And what factors influence your credit scores?

Benefits of a Good Credit Score

Having a good credit score can make financial situations easier and less expensive. The simple truth is, with good credit, your car loan or a mortgage can be easily approved. Most importantly, you qualify for the best terms and interest rates.

The status of your credit determines the amount you pay for insurance. Utility companies also use your credit status to decide whether to demand for a deposit before offering you a service.

Factors Influencing Your Credit Scores

  • Payment History: This is a record that shows your on-time, late, and missed payments.
  • Credit utilization ratio: This is a ratio of the total credit available to you and the credit you are actually utilizing at the moment.
  • Total debt: This shows your total debts or credit accounts. Such accounts include credit cards, loans, and collections.
  • Mix: These are the different types of credit accounts that you are using.
  • Age: A measure of how old your debts are.
  • Hard inquiries: This shows your newest credit application inquiries.
  • Public records: These include factors like civil judgments or bankruptcies.

You need to keep looking over your credit scores to understand the factors affecting them. To rebuild a bad credit history, you need to understand the strongest factors affecting your score. And to improve your scores, you should prioritize the strongest factors.

Rebuilding Your Credit

The good news is you have the capability to change your low credit scores. It sounds simple, but it is not because it takes time and effort.

The process you follow and the steps you take to change your credit status are typically reflected as positive updates in your credit scores in the long run. This is because the data that contributes to your scores reflects your actions towards improving your credit.

1.     Pay Your Bills On Time

Here’s how ridiculously easy it is; pay all your monthly bills on time. Updating your past credit accounts that are due goes a long way in rebuilding your credit. Sometimes all you need to do is to set up automatic payments and payment reminders. This will ensure that you are never late with a payment.

2.     Work On Your Credit Utilization Ratio

It’s obvious that you don’t want your credit cards to reach maximum. Also, it’s not in your best interest for creditors to see your maxed-out credit accounts.

Basically, your credit utilization ratio compares the total credit you have, based on credit card limits, to your available credit or your balance. The lower the ratio, the better; experts recommend it to remain below 30%.

In addition, you can lower your credit utilization ratio by:

  • Managing your credit card debt well
  • Maintaining credit card balances low or at zero
  • Being careful when closing accounts

Tip: Closing an account reduces your available credit; this in turn affects your credit utilization ratio.

3.     Consider Opening a Secured Account

A secured account, like a secured credit card, builds your credit history positively. If you are experiencing difficulties with approval for more traditional loans or credit cards, a secured account can be a valuable tool.

The facility gives you an opportunity to deposit cash into an account as security and borrow a percentage of the same for credit. So, what does all this mean? Using a secured credit account is reported to credit bureaus. A good payment history, as you pay your monthly bill, helps build your credit.

4.     Request Help from Family and Friends

If they are willing, your family and friends can help you to rebuild your credit history in various ways, including:

  • Allowing you to become an authorized user on their credit accounts.
  • Opening a joint account with you.
  • Acting as a cosigner to guarantee you a loan you are not eligible for.

5.     Be Careful with New Credit

Your credit utilization ratio can be significantly improved by increasing the amount of credit you have. But there is a catch- improvement is only possible if you manage to pay your bills each month.


Rebuilding bad credit is possible starting with scrutinizing your credit report for errors and having them rectified by the relevant institution/agency. In addition, pay off existing debts to avoid delinquency and apply for financial tools that are tailor-made for rebuilding bad credit. Such include secured credit cards and joint accounts.

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