How to Rebuild Your Credit Score After a Collapse

A credit score is something  we all have, like a social security number or driver’s license. Unlike your social security number or driver’s license number, you can control your credit score number. You do that with financial decisions you make every day: whether or not you pay a bill, whether you sign up for a new credit card or not, getting your credit score checked before renting an apartment, taking out a loan – the list could go on and on. If you don’t understand what your credit score includes, you won’t know what causes it to increase and decrease. Let’s go over those factors and how to increase your credit score.

What is a credit score?

A credit score is a number between 300-850 that determines whether creditors want to do business with you, or lend you money. If you have a high credit score closer to 850, creditors know that you are good at paying back what you owe. If you have a low credit score closer to 300, creditors will know that you may not be a good candidate for a loan since you have trouble paying money back in full and on time. Your credit score takes into account your credit history, or your record of taking out loans and paying them back. Once your credit cards and loans, along with how well you adhere to bill due dates, are examined, your past behavior is compared to others with a similar profile as you. This eventually is used to calculate your credit score.

Three main credit bureaus – TransUnion, Equifax, and Experian – look at your credit history to put together your credit report, which is used to calculate your credit score. Anytime you have a credit check run on you, someone is paying, most likely, one of these three companies to learn about your credit history.

The credit bureaus must make sure that the information they collect about you is accurate. The Fair Credit Reporting Act (FCRA) requires this. But we recommend you keep up-to-date on your credit report to make sure the right information is used. Everyone can get a free credit report annually from all three national reporting agencies on Otherwise, you have the opportunity to get a free credit report, not free credit score, every year from the credit reporting agencies. Some companies will offer you a free credit score check if you are a customer, but otherwise, you’ll have to pay to get your credit score.

What caused my credit score to decline? 

There are many factors that can cause your credit score to drop, including late or missed payments, a high debt utilization ratio,  closing older accounts (which may shorten the length of your credit history), or applying for new credit card accounts. Mistakes due to inaccuracies or identity theft can also cause credit score dips. Negative marks on your credit report like an account classified as a charge off, a bankruptcy filing, foreclosure, lawsuit, or tax lien can also cause your credit score to collapse. These marks typically stay on your credit report for 10 years.

What are my options for raising my credit score?

One of the first things you can do is to decrease your debt utilization, or the percentage of available credit you use. To do this, you can spend less money on your credit cards, and more on your debit cards or cash. If you can afford it and can get approved, you can also open another credit card so that you have a bigger credit line and so that you can spread your purchases out over multiple cards. You should also not close unused credit cards, because that will increase your debt utilization.

You can also try your best to get better at paying off your bills on time. Late payments can stay on your credit report for seven years. That may mean setting up autopay or negotiating a lower interest rate. Debt utilization and payment history together make up 70% of your credit score, so it’s best to focus on those two strategies first. 

Applying for too many credit cards is also a bad thing for your credit score. When you apply for a new card, you create a hard inquiry, which negatively affects your score. These should only stay on your credit report for two years, though.

If you have the issue of thin credit, meaning you have a small credit file, you should consider beefing up your credit history. For example, you could open a secured credit card, which requires a cash deposit often equal to the credit line. This deposit is used in case you don’t pay your bill. Since not paying your bill would negatively affect your credit score, do not open a secured credit card account if you will have trouble paying off the bill.