How to Build Credit with Bad Credit

Credit Report

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The process of building good credit is the same whether you have bad credit, new credit, or are starting from scratch. We can all start learning how to build credit at 18, or even sooner.

The difference with bad credit is that you must get rid of negative items on your credit report in addition to building new, good credit.

It can seem like a mountain to climb, but there are ways to build credit with bad credit.

How to Build Good Credit

Establish a Clear Credit Identity

You must write your name, in the same way, every time you open a new credit account. Why is this important? A lender will search for your credit report before authorizing any loans or credit cards.

Any inconsistency in the way you write your name can negatively impact that process. The lender may not be able to find a full report since they use automatic computer systems to run credit checks.

Any good credit you build might not make it onto the right report if the names don’t match. You want to make it as easy as possible for creditors to find your credit report when they search for you.

Be consistent in how you write your name.

Part of establishing a clear credit identity is writing your address in the same way as well. If you include the suite number and apartment building name, write it that way every time. For example:

15 Bear Lane
Springfield, Illinois 65689

Remember to be consistent with the way you write street names. If you abbreviate the word Street (St.) or Avenue (Ave.), do it on every form you complete. Do the same with the name of your state. 

You might want to use the address of your parents or a trusted friend if you don’t have a consistent address. It will help you build a consistent credit profile.

Having a clear credit identity will help you recover from poor credit and start building new credit.

Get Credit Accounts

1. Report Your Rent to Credit Bureaus 

When you have bad credit, it’s important to use every tool you can to start rebuilding your credit score. One of the best ways to do that is to add as many monthly accounts as you can to your credit report. Here is a list of our The Best Credit Building Apps.

Most of us pay rent. In fact, around 30% of an average American’s monthly income goes to rent. We tend to stay in a place for at least a year, so it is great for building a credit history.

You can use monthly rental payment data to show that you have a consistent payment history. 

You can turn your bad credit around by reporting your rent to the credit unions. Grow your credit history to build good credit. If you are younger, also check out our article, How to Build Credit at 18.

2. Use Experian BOOST to Report Bill Payments to Major Credit Bureaus

You can use Experian BOOST to do that. You can also add your rental payments, utility bills, and subscriptions to your credit report using their services. Reporting credit of this kind can help you on your journey to solid credit.

Remember to keep any accounts that you have in good standing open. Your payment history is the biggest contributor to your credit score. These accounts can help you improve a bad credit score.

Using your bill payments will help you rebuild credit with a bad credit score. It can prove to a lender that you’re capable of making on-time monthly payments. You can also monitor your credit, which is critical when trying to change bad credit.

Also, note that Experian BOOST only adds positive payment history to your credit report – it won’t report anything bad. That’s why I love it!

3. Use Credit Builder Loans

Credit builder loans are one of the best ways to build credit with bad credit. Also take a look at our article, How to Rebuild Credit Fast or How to Build Credit Without a Credit Card for getting a jumpstart on building your credit.

CreditStrong has some of the best options available.  On average, they found that clients who had used them for 3 months received a 25-point credit score boost. And clients who made on-time payments for 12 months went up 75 points on average!

Credit builder loans are a type of installment loan. You must get one if you plan to buy a house one day. It is a great way to develop a strong credit history.

You build healthy debt, create a solid payment history, and even walk away with savings once you finish paying off the loan.

CreditStrong reports your monthly payments, keeps a fee for themselves, and the remainder goes into a savings account. You receive the money when you finish paying off the loan. It usually takes between six and 24 months to pay back.

Credit builder loans diversify your credit report and help you rebuild credit. Bad credit isn’t permanent if you use these tools.

If you have a student loan, you can use that to rebuild your credit. You can use your monthly payments as proof of a solid credit history.

4. Get Secured Credit Cards

You can’t qualify for a normal unsecured credit card with poor credit. There is another way. Secured credit cards are fantastic for rebuilding credit because you can add new credit lines to your profile.

You pay a certain amount as a deposit to the card issuer. That way, you can control your credit limit, and the lender is guaranteed payment if you default on payments.

Using secured credit cards can help you transform your bad credit because you can develop a solid payment history. You can also get a secured business credit card to help turn bad business credit around.

You must use credit cards responsibly. Try not to reach your credit limit. Developing good credit habits is one of the best ways to improve a bad credit score and maintain good credit.

Always check your available credit before spending. Remember to keep your credit utilization ratio below 10%. Any ratio above 50% won’t help you build good credit.

If you have bad credit, then you can’t qualify for a normal, unsecured credit card, but a secured credit card will help you turn around bad credit.

Make On-time Monthly Payments

Since payment history is the biggest part of a person’s credit score, it’s important to make on-time payments on all credit accounts.

Consistent payment leads to a solid credit history and can rid you of bad credit. It can also make you eligible for things like a credit limit increase or a personal loan. It will take awhile to reach that point if you have an exceptionally low credit score.

Try to keep most of your credit available to boost your credit utilization. It will also prevent you from getting into debt you can’t handle which then creates more bad credit. Also take a look at how paying off your debt will impact your credit: If I Pay Off My Credit Card in Full, Will My Credit Go Up?.

Your payment history is the most important aspect of your credit report. Making consistent monthly payments will improve that score and help you turn your bad credit around.

How to Remove Negative Items from your Credit Report

Once you follow the guidelines above and start building new credit, you can move onto removing negative items from your credit report. Your credit history plays a fundamental role in converting bad credit to good.

There isn’t a lot that you can do to change some items that end up on your credit report, but it’s not impossible.

Here are things to keep in mind and try when rebuilding your credit.

Some Negative Items Can’t Be Removed, But There is Hope

Bankruptcies, foreclosures, and evictions stay on your credit report for a long time. Bankruptcies can stay there for up to ten years while foreclosures and evictions remain for seven. 

Credit experts claim that after two years, the effect of these negative items significantly decreases. It’s possible to have a 700+ credit score two years after facing bankruptcy because they immediately started building credit.

Late payments and collection accounts are less harmful but can still hurt your overall credit score. Make on-time monthly payments to create good credit, but don’t panic if you miss a few because of unforeseen circumstances.

You can turn bad credit into good credit by rebuilding it from the ground up. It seems impossible when you have huge negative items on your credit report.

Dispute Any Incorrect Items on Your Credit Report

Get a free credit report and go through it. Check for any discrepancies. Sometimes credit data isn’t updated correctly. You could have a bad score because incorrect items are on your credit report.

Make sure you regularly check your credit record to make sure any old and negative credit lines don’t appear if you paid them. Also, make sure there aren’t any new negative items that appeared. Always monitor your credit report even if you have an exceptional credit rating.

Getting these items removed can help you move away from bad credit. Checking your report to monitor new credit will inspire you to keep increasing your credit score.

Write a Goodwill Letter or Pay-for-Delete Letter to Remove Negative Items

A goodwill letter is simply a request to remove a negative item from your credit report. This works for late payments but wouldn’t work for heavier items like bankruptcies or foreclosures.

A pay-for-delete letter is used for removing collection accounts. Collection agencies usually don’t get paid anything, so you can easily negotiate a deal. Often, you can pay for the deletion of the item from your credit report if you agree to pay something for your past-due debt.

Try not to put all your hope into this method. It can pay off, but it shouldn’t be your main focus when trying to turn your bad credit around.

Frequently Asked Questions

How can I build my credit with a 500 credit score?

There are cases where people go from a 500 credit score to a 700 credit score in 6 months or less. It all depends on what’s on your credit report and what you do to fix it.

How do I get my credit score up to 100 points in one month?

The faster you follow the steps in this guide, the faster you’ll get results. You can completely turn your credit around in 3-6 months. Going up 100 points in one month isn’t likely, but in some places it is possible.

Can I build business credit with bad personal credit?

Yes, you can. But why not fix both at the same time? It’s way easier to get capital with both a good personal and business credit profile.

Can you get a house with a 500 credit score?

No, you can’t. However, once you get it up to 620, you’ll be able to get a home loan but with poor interest rates. Aim for a minimum of 680. People have been able to do that in 6 months, and it’s exceptionally doable in 12 months. Just be patient and disciplined. Building credit can take time.

Once you establish new credit lines and improve your credit utilization ratio, you will start seeing results. Get credit builder loans and secured credit cards to build good credit without getting into bad debt. 

Check your credit reports and remove any incorrect items. Make on-time monthly payments for every credit account you have so you can boost your credit score.

Adding all accounts, like rent or utilities, also helps you rebuild credit. Use secured credit cards to set your own credit limit and healthily manage your debt to build credit.

Follow this guide on how to build credit with bad credit, and you can start rebuilding your credit score.

To continue learning about credit, see the following articles in the series:

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