6 Ways To Rebuild Your Credit Fast: Strategies That Work
How I increased my score by a whopping 250 points in 6 months — even after bankruptcy
We all know the story — you had excellent credit, and then something went wrong and before you knew it, you had terrible credit. That’s what happened to me.
(I’ll share a bit of the background story, but if you just want to read the 6 strategies, go ahead and skip to the next section.)
I started building credit when I was 18. A few years later, my FICO scores hovered around 750 and my VantageScores were about the same. I had a variety of credit types on my record: student loans, an auto loan, plenty of credit cards with limits of $10,000 and up… so everything was looking good.
I put everything on my credit cards, but I paid the balances in full each month. I reaped the benefits of numerous rewards programs, several times receiving a statement credit of $1,000 for all of the points I had accrued.
When I decided to complete a post-graduate program for an advanced certification, I opened a new credit card and put the tuition on that card. There was 0% APR for 18 months, and I had no plans of making any other major purchases for at least a few years, so I didn’t mind the small hit that my credit would take for having a card with such a high balance on it.
It was smarter than taking out a student loan, I thought. I already had tons of student loans that were in deferment, but the interest was accruing and the balances were growing each month. It would take the majority of my adult life to pay them off. Something about this was infuriating to me, because I graduated college in 3 years, I had a scholarship, I was an RA, and STILL I ended up with double digit student loan debt. I went to grad school for free, and STILL I had to take a student loan to cover living expenses.
At least with a 0% APR credit card, I had 18 months to pay the balance, and the investment in an advanced certification should have made it easy to accomplish.
And then I hit a road block.
The advanced certification did not lead to the salary increase that I expected. As life would have it, a few other things happened that changed my debt to income ratio, and before I knew it, I found myself unable to pay the debt.
I also found myself using my other credit cards to cover basic expenses. I knew I was in trouble, but I was in such a fog that I couldn’t come up with an exit strategy, so I tried my best to stay afloat, telling myself that it would soon get better.
It didn’t. My scores plummeted to the low 400s and the principal balances never seemed to go down, despite making monthly on-time payments.
It was time to act.
I tried a debt consolidation program. A prerequisite for the program was having 90 days of late payments on your credit report, after which the program facilitators would negotiate a settlement for each of your debts. So I had to completely obliterate my credit just to qualify. But hey, anything is better than bankruptcy, right? The basic premise was that it would take 2 years to repay the debts, but every account would be closed, and they would all show up as delinquent on your credit report. After the 2 years were up, the facilitators would help you remove the negative remarks from your credit report.
NO. I slowly came out of my fog and I got out right before it was too late.
I decided to file Chapter 7 bankruptcy pro se before my scores went down even further, and I immediately started the process of rebuilding my credit.
By filing pro se, I saved $1500 on attorney fees. I did all the forms — at least 70 or 80 pages, but I lost count — by myself after spending a day convincing myself that I could do it.
Pre-filing FICO scores (average of all 3 bureaus): low 400s
Scores on the date of discharge: mid 600s
If you are reading this, you probably already know what makes up your credit score. But just in case…
You might not know that services like CreditKarma (which is now free) show you your VantageScore, not your FICO score. It’s still valuable data, but you should know that lenders generally look at your FICO score.
Both FICO and Vantage receive information from the three credit bureaus: Equifax, Experian, and Transunion.
And of course, you are entitled to a free credit report each year, which does NOT result in a hard inquiry on your credit report. These free credit reports do not include your actual credit scores — they are just credit reports. You can use them to look for inaccuracies and to file disputes, if necessary.
Strategy 1: Piggybacking
I immediately found a family member to add me as an authorized user on a high-limit, low-balance credit card. “Piggybacking”, as they call it, is a clever strategy for a variety of reasons:
- You immediately increase your available credit and you lower your ratio of debt to available credit.
- You inherit the account holder’s payment history, which (a) could increase your average account age, and (b) will make a significant difference in your payment history.
- It doesn’t hurt the account holder; they simply add you as an authorized user and discard the card when it arrives in the mail.
- You can do this more than once.
- Don’t get added as an authorized user if the person’s balances are too high, or if they don’t have a positive payment history.
- Think very carefully before getting added to a stranger’s account. Yes, people do buy and sell tradelines (i.e. you pay a ridiculous amount of money for a stranger to add you as an authorized user to a high limit credit card for a few months so that your scores will go up and you can qualify for a mortgage). It’s legal, but it’s pricey and the results are not permanent. This is not a solution; it’s a last resort.
- Some FICO scoring models weigh authorized user accounts differently than primary accounts.
Strategy 2: Open a Credit Builder Account
I opened an account with SelfLender (full disclosure: this is a referral link). SelfLender is exactly what it sounds like — you lend yourself money, and your self-loan is reported to all 3 credit bureaus as an installment loan.
SelfLender works by opening a CD in your name in the amount that you choose. You pay a one-time setup fee (mine was $9) and then you make monthly payments (mine are $25) until you’ve paid back the entire amount of the CD. Then, the entire CD is cashed out and you get the money back.
Here is what they have to say about it:
1. You can join Self Lender at no cost and then apply for a credit builder account. Once approved, you pay a one-time non-refundable administrative fee for the credit builder account. Pricing Details.
2. Our bank partner lends you a small loan that’s held in a FDIC insured CD (these funds are locked until the loan is paid in full).
3. Next month, you begin to repay your credit builder account by making equal payments over the term. Each month, payment history is reported to the credit bureaus.
4. At the end of the term, you’ve paid off your loan and your CD matures and unlocks with earned interest. During the term of the loan you’ve demonstrated months of payment history to the credit bureaus, which accounts for 35% of your FICO score. However, when paid-off the loan no longer provides active payment history and no longer helps to improve your credit score. It is important to maintain active accounts with positive payment history to maintain or improve your credit score.
This is a great strategy because:
- You add a new type of credit to your credit report (an installment loan), and having a variety of credit is an important factor in determining your score.
- You are essentially making monthly payments to a savings account, and at the end, you get it all back.
- There is NO credit check involved, so it doesn’t hurt your score to sign up.
- If you can’t make the monthly payments, don’t sign up; you will just end up with more delinquencies on your credit report.
- Someone asks what you want for [insert holiday here]? Ask them to set up a SelfLender account in your name. They’ll get all their contributions back at the end, and you’ll benefit from the boost in your credit score.
- It does take approximately 60 days for this loan to appear on your credit report.
Strategy 3: Add Your Rent Payments to Your Credit Report.
Yes — you can do this!
I used a service called Rental Kharma (seen below), but there are others. Rental Kharma will retroactively report payments going back 24 months, and then continue to report your payments each month going forward.
This is a great strategy because:
- You add a new type of credit to your credit report.
- If you are paying rent anyway, why not have it count for something?
- There is a fee to retroactively report rent payments, and your landlord will have to send a statement to Rental Kharma.
- It costs a few dollars a month to continue to report.
- Not all versions of FICO scores include rental payments in their calculations. Some versions of FICO do, and VantageScore does.
If your rental history is subpar, but you believe that you can pay on time going forward, you can choose only to report future payments, not past payments. Nice.
Strategy 4: If you are rebuilding credit after bankruptcy OR if you are building credit from scratch, open a few new accounts.
I know — it sounds counterintuitive. If your credit is terrible, how can you open new accounts? And should you?
You need to. But you probably shouldn’t use them.
You can open a secured credit card if you can afford to make a deposit, or you can go for low-limit unsecured cards.
I didn’t have extra cash for a deposit on a secured card, so here is what I did:
I opened a Fingerhut account. I got approved for a $300 limit. Now, you can ONLY use this line of credit at Fingerhut.com, and I have no intention of ever doing so, but it gave me a new line of credit, it increased my available credit, and it will contribute to my account history. Fingerhut will increase your credit line significantly if you do use the account, but keep in mind that you are paying more than you should be paying for most of what you buy. Occasionally, there are clearances and great deals, but don’t go on a shopping spree with this one.
I also opened a CreditOne account because I wanted an unsecured card, but there is an annual fee. Same benefits as above. I don’t recommend this card unless you plan on buying a cup of tea and paying it off immediately and leaving it alone, because they actually charge you to make same-day payments from your bank account. If you want to pay without fees, you have to wait 7 days for the payment to clear. Ummm… not cool, but I’ll take the increase in available credit.
If you have a CreditKarma account, you will see a list of recommended cards and approval odds. Do your research, but don’t be afraid to open new accounts because you can’t build credit if you don’t have any open accounts.
- Opening a new account means that you will have a hard inquiry on your credit report, and these inquiries stay for 2 years. However, if you don’t need to make a major purchase right now, it might be worth it to take a small hit to your credit (~5 points) if you know you can get approved, because the increase in your available credit will do you good in the long run.
- Beware of annual fees, interest rates, and so on. Read the fine print.
- If you open too many new accounts, your average account age will go down. But if you are building credit from scratch, you have nothing to lose.
Strategy 5: Get your student loans into deferment/forbearance, or get on an income-driven payment plan. If you have balances on your credit cards, call the lender and ask for some help.
First: student loans.
If you have federal student loans, you should be aware of the numerous ways that you can get them into deferment. Some people even qualify for forgiveness. While your loans are in deferment or forbearance, the lenders report your account as current and in good standing every single month. Woo!
If you have been paying late, or not paying at all, just give them a call. Most will offer a hardship deferment of 3–6 months. Some will get your loans deferred for a longer period of time. If you don’t qualify for any of the above, at least get on an income driven payment plan. Your monthly payments will likely go down.
Second: credit cards.
Call the creditors and ask if you can sign up for a payment plan, lower your monthly payments, temporarily suspend interest, etc. Most creditors will work with you.
Strategy 6: Clean up your credit report.
This is the boring part.
Review your free credit report and look for inaccuracies. File disputes with the three major bureaus if you see something that isn’t accurate. There are hundreds of templates online for these dispute letters.
If you have accounts in collections: Call the original creditor or the collections agency and ask for a pay-for-delete letter. This means that you will pay them if they remove the account from your credit report. Otherwise, don’t touch it without doing your research — paying an account in collections will not automatically remove it from your report. Don’t agree to a verbal promise. Get it in writing.
If you have accounts with high balances and don’t plan on filing for bankruptcy: Start to pay them off. Pay $10 here, $10 there. Pay what you can afford. Pay more than once a month. Skip the coffee and send that $3 to Chase. Do what you have to do, just get the balances down.
Do not use one of those “credit cleanup” companies or law firms to help you.
I have seen some of them charging monthly fees just to send a dispute letter on your behalf. Are they crazy? You can send these letters alone and use the money you would have spent to pay down your credit cards.
It goes without saying: your payment history makes up a significant portion of your credit score.
If you can’t make payments and if you’re drowning in debt, it might be time to consider bankruptcy. Bankruptcy is NOT the end of the world; many people find that their scores post-discharge go up instead of down. Mine did.
Yes, the bankruptcy itself remains on your credit report for 7–10 years, depending on how you file. But you can start rebuilding your credit immediately.
If it will take you 2+ years to dig yourself out of the debt you’ve amassed, consider that filing for bankruptcy instead could put you in a position to have a 700+ score by that time (if you change your habits).
But I can’t get a loan, a car, or a mortgage after bankruptcy.
Yes, you can. The interest might be high, but you could refinance later. Most lenders will help you get a loan if you’re 12 months post discharge and if your credit has been in good shape ever since. It’s not the end of the road.
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