10 Ways to Get Back on Track When Your Credit Takes a Hit

Bad credit can feel like a pair of financial handcuffs. A low score can block you from a mortgage with a good interest rate or keep you from getting an auto loan. The good news is, bad credit scores aren’t permanent! It might take some time, but there are several ways to work yourself out of the financial penalty box. Try these 10 steps to rebuild a credit score that will even impress the credit bureaus.

1. Try Secured Accounts

When it comes to credit, not all cards are the same. Banks generally issue unsecured credit cards that are based on income level and credit history. If your credit score isn’t the greatest — meaning, it’s below 670 — you might have trouble qualifying for one. But that’s OK. You have another option.

Secured credit cards are a great way to rebuild your credit history. They work similarly to prepaid debit cards, but debit cards don’t report to the credit bureaus. These do. You’ll put down some of your own money as a security deposit, and that amount will be your credit limit. Use it once or twice a month like a regular credit card. Pay your bill on time, and your credit score will start to climb.

2. Get Authorized

You can also rebuild your credit with the help of a family member or someone you trust who has good credit. If they agree, you can become an authorized user on their credit card. That means you are legally allowed to make purchases with their card, but they are ultimately responsible for payments.

You don’t need to make purchases to boost your score, though. Simply by being an authorized user, you benefit from their credit score and their on-time payment history. Your credit gets a bump by association with your loved one.

3. Sign Up for Store Credit

How many times has a cashier asked you if you want to sign up for a store credit card? It’s probably happened more times than you can count. Next time don’t brush it off. Give it a shot.

These cards don’t have high spending limits, so you won’t run up a high balance that’s tough to pay down. Keep in mind that the interest rates are also higher than regular credit cards. So be mindful of when payments are due so you can keep on track. The approval criteria aren’t as difficult to meet as those for standard credit cards.

4. Watch Those Due Dates

Yes, you know to pay your bills every month. However, with everything you juggle — work, family, maybe even school — keeping track of due dates can be tough. Trying to remember to pay by the 1st or the 15th adds one more thing to your mental plate.

Instead, use the "set it and forget it" solution. Create bill payment alerts that will pop up on your phone or computer. Schedule them for a day or two before the bill’s due date, and you’ll never miss another payment. Fewer missed payments equal a better credit score.

5. Control Your Spending

This tactic doesn’t necessarily mean pinching your pennies and looking for deals. Instead, keep an eye on your credit utilization. That’s the portion of your total credit spending limit that you’re using. For example, if your credit limit is $1,000 and you charge $250, your credit utilization is 25%.

Do your best to keep your utilization to less than 30%. In fact, if you can shoot for 10% — that’s the sweet spot for ideal credit scores. You can do this in a couple of ways. Paying your bills in full every month consistently keeps utilization low. Also, if your credit score has rebounded enough, you can request a credit limit increase to improve your usage ratio.

6. Limit Your Credit Pulls

Every time you apply for a loan or a credit card, the bank or company makes a credit inquiry. It’s an official request to review your credit history. Credit inquiries fall into two categories — soft and hard. Soft inquiries, like a potential employer checking your credit, don’t impact your score. Each hard inquiry — like one made when you apply for an auto loan — can knock off a few points.

Do yourself a favor. When you’re rebuilding, it’s tempting to sign up for a healthy handful of credit cards at the same time. Having too many credit inquiries at once is a red flag, though. You’ll look like you’re in a money crunch, and banks or credit card companies will see you as a financial risk. As a result, you could end up with a dinged credit score and denied applications.

7. Build on a Short History

Building a strong score is typically based on your credit history — credit card or loan payments, etc. If you’re younger or haven’t had credit cards before, your credit file will be pretty thin. Don’t worry. You can still maximize the payment history you do have to show you’re a good financial bet.

There are several free tools that can report your financial track record to the credit bureaus. Experian Boost pulls in your utility payments and banking history to show stability. UltraFICO looks at your checking and savings accounts, banking history, and online bill pay activity. Rent Track and Rental Kharma (which does have a subscription fee) report your monthly rent payments to the credit bureaus.

8. Keep Those Old Accounts

Did you open a store credit card way back in college? Even if you haven’t shopped there since, keep that account open. It helps your credit score in two ways.

Banks and credit card companies look for long-term history. If that college-era account is 10 to 15 years old (or more), it will boost your credit score. Also, it contributes to your overall spending limit. The bigger that limit, the easier it is for you to have that good credit utilization ratio you read about earlier.

9. Create One Big Debt Bundle

If you owe money on several accounts, it can be difficult to keep up with all the payments. Letting even one payment slip through the cracks can damage your credit score. It would be a lot easier to keep track of one bucket of debt.

A consolidation plan could help here even though it temporarily shaves a few points off your credit score. These plans lump all your debt into a single sum. You can chip away at it by making monthly payments to one place. It’s a much easier way to tackle all your debt and rebuild your credit score at the same time.

10. Apply for a Quick Loan

Quick loans are an option if you can’t find another avenue to boost your credit score. But remember that they usually have high interest rates, so consider them a last resort.

If you’ve tried all the other tactics above and nothing has worked, consider one of these loans. Typically, they’re small (maybe $250-to-$1,000), and the lender will report your payment history to the credit bureaus.

While you’re trying to rebuild your credit, you’ll likely be overwhelmed with offers that claim to help. Be sure to examine them closely. In particular, avoid payday or title loan lenders. They don’t report to the credit bureaus, and you could find yourself trapped in a vicious borrow/pay-off cycle.

Restoring your credit isn’t easy or fast, so start the process now. Maybe you’re dreaming of owning a home. Perhaps you want to take a bucket list vacation. Or, maybe you just want a little more financial wiggle room. A solid credit score can help make all those things realities.