HOW TO BUILD A GOOD CREDIT SCORE AFTER TAKING A HIT

Have you ever forgotten to pay a bill and watched your credit take a hit? It happens. Unfortunately, recovering from even a small mistake can take years. If you’re wondering how to rebuild your credit after a drop, the process may seem daunting, but it’s entirely possible if you follow the right steps.

UNDERSTAND WHAT AFFECTS YOUR CREDIT SCORE

Before improving your credit score, it’s important to know what goes into it:

• 35%: Payment history – Whether you pay your bills on time and how much you pay.
• 30%: Credit utilization – How much credit you’re using versus your total limit.
• 15%: Length of credit history – How long you’ve been building credit.
• 10%: Credit mix – The variety of credit types, such as credit cards, loans, or mortgages.
• 10%: New credit – The number of recently opened accounts.

If any of these factors are “off,” your credit score can suffer. Here’s what you can do to improve it.

IMPROVE YOUR PAYMENT HISTORY

The best way to rebuild your credit is to pay your bills on time, every month, and, if possible, in full. On-time payments help build a strong credit history and prevent expensive interest charges.

If you can’t pay in full, avoid making only the minimum payment, as that will increase your debt over time. A good rule of thumb is to pay at least twice your minimum payment each month. This helps reduce the time needed to pay off your balance and lowers your credit utilization ratio.

Another helpful tip is to pay “mid-cycle” – a week or so before your bill is due. When you make an early payment, the balance reported to credit bureaus is lower, which can boost your credit score.

MANAGE YOUR CREDIT UTILIZATION RATIO

Spending within your means is crucial when rebuilding credit. Your credit limit is not a spending target—it’s the maximum amount you can charge. Using too much of it can hurt your credit score.

Ideally, your credit utilization should stay below 20%-25% of your limit. If you have a high balance compared to your credit limit, your debt usage ratio increases, which can negatively impact your score. If you can’t pay your full balance yet, keeping your credit usage low is the next best strategy.

KEEP OLD ACCOUNTS OPEN AND AVOID OPENING NEW ONES

The “new credit” portion of your score considers recently opened accounts and credit inquiries. Opening several new credit cards within a short period can make you appear risky to lenders.

On the other hand, keeping older accounts open can be beneficial. Closing them reduces your available credit, which increases your utilization ratio. If you have an older card in good standing, keeping it open can help maintain your credit score.

COMMUNICATE WITH YOUR CREDITORS

If you were in good standing with a creditor but missed a payment, consider reaching out. You can call or write a letter explaining your situation. Creditors may be willing to work with you and even update your report with positive adjustments.

Additionally, some creditors offer programs to help customers rebuild credit. Making these calls may not be fun, but they can make a difference. Everyone makes mistakes—it’s how you recover that matters.

BUILD AN EMERGENCY FUND

One common reason credit scores drop is reliance on credit cards for unexpected expenses. When you don’t have cash on hand, you might charge emergency costs to a high-interest credit card, leading to more debt.

An emergency fund acts as a financial safety net, preventing reliance on credit in tough situations. The old recommendation was to save three to six months’ worth of expenses, but newer research suggests that even six weeks of expenses can be sufficient.

To start, set a manageable weekly savings goal—$10, $20, or $50. Even small contributions can add up and provide financial security over time.

FINAL THOUGHTS

Rebuilding a damaged credit score takes time, but with consistency and smart financial habits, you can restore it. Focus on timely payments, keeping debt low, maintaining old accounts, and building savings. By taking these steps, you’ll be on your way to a stronger credit profile and greater financial stability.