Financial Comebacks: How to Rebuild Credit

Financial setbacks happen to the best of us. From unexpected medical bills to job loss, life throws curveballs that can hit your credit hard. But the good news is this: your credit score isn’t permanent, and you can rebuild it. This guide covers everything you need to know about rebuilding your credit after financial challenges, including tips and tools to help you along the way. Afterall, everyone loves a good comeback story!

Credit Score Meaning

To rebuild bad credit, you first need to understand how credit is typically measured. A credit score is a three-digit number that tells lenders how likely you are to repay borrowed money. Think of it as a snapshot of your financial behavior, also known as “creditworthiness.”

Credit scores typically range from 300 (poor) to 850 (excellent). They are calculated based on five main factors, including:

• Payment History (35%): Did you pay on time? Or…not? Payment history has the biggest influence on your credit score.
• Credit Utilization (30%): This is how much of your available credit you are using at the end of your billing cycle.
• Length of Credit History (15%): The longer your accounts have been open, the better.
• Credit Mix (10%): Do you have experience with different credit types (credit cards, loans, etc.)? Showing that you can successfully manage multiple forms of credit demonstrates your responsibility to lenders.
• New Credit (10%): Frequent credit inquiries can slightly lower your score in the short term. This is because it implies desperation for money and risky financial behavior.

The two primary credit scoring models are FICO and VantageScore. Although they have minor differences, both models focus on the same fundamental factors we have discussed above.

For a deeper dive into the basics of credit scores, read “Credit Scoring: What Factors Affect Your Credit Score?”

Now, let's tackle those pesky financial setbacks.

How to Rebuild Credit After Financial Challenges

Let’s not sugarcoat it; repairing your credit takes time. But these actionable steps will put you on the right path and help you start repairing your credit:

1. Check Your Credit Report for Errors

First things first, pull your credit report and look for errors. Sometimes, a low credit score can come from mistakes like incorrect account info or debts you didn’t actually incur. If you ever find discrepancies, make sure to dispute them with the credit bureau and set the record straight.

PRO TIP: Every year, you are entitled to one free report from each of the three major credit bureaus. Order your report through AnnualCreditReport.com.

2. Pay Bills On Time (Seriously!)

As mentioned, payment history is the single biggest factor in your credit score, so prioritize paying your bills on time! Consider setting reminders or using automatic payments to avoid missing deadlines. And if you fail to make a payment, call your creditor immediately. Sometimes, they will waive the late fee if you are quick enough to explain the situation and if it’s your first offense.

3. Keep Credit Utilization Ratio Low

Credit utilization measures the percentage of available credit you are currently using. Ideally, you should keep it below 30% for a positive impact on your score. For instance, if your credit limit is $1,000, try to keep your balance under $300 in order to achieve 30%, even if it means making card payments more often.

You could also ask for a credit limit increase—but only if you can resist the temptation to spend more. Having a higher credit limit makes it easier to maintain a low utilization ratio.

4. Work with Your Creditors

If you are struggling to keep up with payments, reach out to your creditors. Many offer hardship programs, deferred payment plans, or reduced interest rates to help clients during tough times. It might feel awkward, but rest assured, creditors appreciate proactive communication over radio silence.

5. Pay Off Debt Strategically

Financial setbacks mostly involve debt. Try the snowball or avalanche method for debt repayment strategies:

• Snowball Method: Pay off the smallest debt first, then tackle the next smallest. This creates easy wins and builds your motivation.
• Avalanche Method: Prioritize the debt with the highest interest rate first, saving you the most money in the end.

Need more structure? Consider consolidating debts into one monthly payment with a lower interest rate.

6. Use a Secured Credit Card

If you are looking for one of the best ways to build credit (or rebuild credit), a secured credit card is a great resource. It is backed by your cash deposit, which serves as collateral on the account. This reduces risk for lenders because it provides them with financial protection in case you (as the borrower) default on payments. Secured credit cards are often called “credit builder cards” because they are tailored to individuals with little or damaged credit.

The best secured credit cards help you repair credit without the risk of overspending. Luckily, the Credit Builder Secured Credit Card¹ from Academy Bank is an excellent option. With on-time payments, this card reports your positive activity to all three credit bureaus, meaning your credit building efforts are acknowledged and rewarded (hello, credit repair!).

Rebuild Credit at Academy Bank

Fixing your credit after financial setbacks may not be the easiest task, but it can reap great benefits in the end! With the right tools from Academy Bank, you can get back on your feet faster and smarter. Here’s how:

• Credit Card to Rebuild Credit: Our Credit Builder Secured Credit Card¹ makes it simple to rebuild credit in a straightforward, clear-cut way. Plus, it’s easier to qualify for than other credit cards!
• Personal Loan for Debt Consolidation: Use our Express Loan² to roll your debts into one single payment with better interest rates and loan terms.
• Financial Calculators: Create the best strategy for repaying borrowed money with the Credit Card Payment Calculator, Debt Consolidation Loan Calculator, and Debt Management Calculator.

Everyone loves a comeback story! Take the first steps to rebuild your credit today!