How to Use Credit Cards to Rebuild Your Credit Score

Cole Mayer  | 

Low credit is worse than no credit. With no credit, you have no history – lenders are unsure of you. Bad credit, on the other hand, paints a picture for the lenders. It tells lenders that they should be wary – and thus only approve loans at much higher interest rates.

All is not lost, however, as it’s possible to rebuild your credit. It’s a long road, where you can’t stray from the path, but given time and good financial practices, you can raise your credit using a credit card.

Your Credit Score

To know how to start rebuilding credit, it’s important to understand how your credit score is calculated. As Equifax, one of the three credit unions alongside Experian and TransUnion, explains, the biggest factor is history. Between payment history and how long you have had an open credit card, it’s better not to start closing down accounts when you start on the road to rebuilding your credit. However, another factor is how many accounts you have – you don’t want too many or too few. Ten cards may be too many, while having only one or two won’t help you build credit. Having a history with a few cards, even if it’s a bad history, will help in the long run.

If you are rebuilding credit after bankruptcy, know that it will be a mark on your credit for anywhere between two and 10 years. Don’t let this discourage you – you can still build credit.

Pay Each Month, On Time

Regardless of whether you have a long credit history or not, paying each month, on time, with at least the minimum required will help you build a positive history.

Though it may sound funny, paying off the entire credit card is not beneficial to your credit. Keeping a revolving credit affects another credit factor, usage, which is dependant on your credit limit. If your card has a $10,000 limit, and you have $7,500 on the card, you are at 75 percent usage.

The optimal usage is 30 percent. If you can keep the card under 30 percent, still paying each month but not paying all of the debt, your credit score should see an increase. Usage is very important; about 30 percent of the credit score calculation.

As you start down this path, your entire thinking of a credit card should change. Don’t think of it as a delayed payment. Instead, use it as you would a debit card – only buying what you have money for now.

Consolidating Debt and Other Management Options

Sure, the last point sounds great in theory, but how do you go about actually paying the credit card off? Experian has a simple suggestion: negotiate with your credit card holders. Be honest. Don’t use excuses; instead, tell them you are moving forward and want to fix your financial and credit woes.

They can work with you to accomplish this. It may be in the form of consolidating debt with the help of a third party (a common scenario is the company pays off the debts in their entirety, and then you owe them instead). Or, it could be a reduced interest rate or monthly payments. They may waive certain fees. Or, they could allow you a time period for not paying, giving you a chance to earn money.

A debt settlement plan allows you to pay less than the full amount you owe – but this will show on your account, and your credit score will reflect your inability to fully pay back the creditor.

Each creditor is different, and may give you different options. Depending on how they report credit, your score may change differently than someone taking the same option from a different lender. Be sure to talk with your creditor about how your score will be affected. Finally, there may also be tax implications for the options you choose. If possible, speak with a financial advisor, certified credit counselor, or tax professional on these matters.

Unsecured vs. Secured Credit Card

Fixing your credit means changing habits, and sticking with a schedule. While the old you would be fine with delayed payments, it is easy to turn into an unhealthy financial habit. If you don’t trust yourself to instead use a credit card as if you had cash, or as a debit card,, you can get a secured credit card to help rebuild credit.

Consumer.gov has a simple explanation: “A secured credit card works like a debit card. You use your money, not a loan from a bank.” You use your bank account, pulling directly at the time of the purchase.

There are a few key differences between a secured credit card and an unsecured – and even a debit card. Unlike a debit card, your use of a secured credit card is reported to the three credit unions, which, with good financial practices, will increase your credit score.

Secured credit cards, unlike a traditional credit card, often have high much higher fees. As secured credit cards are often used by those with low credit, banks treat them as high-risk accounts.

The Long Road Ahead

Fixing your credit is not an easy task, and there’s no way to do it quickly. Anyone who says differently is likely running a scam. What it does require is dilligence, a will to change habits, and the ability to stick with it.

Depending on how bad your financial difficulties were, it could be months to years before your credit score recovers. But with good financial habits, your score can and will improve.


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Cole Mayer is an online marketing specialist and corporate blog writer. A former newspaper journalist, he spends his free time freelance writing, playing video games, and learning about every subject under the sun. Follow Cole on Twitter: @ColeMayer42

This post was updated August 8, 2017. It was originally published March 28, 2017.