How Do I Rebuild My Credit After Financial Setbacks?

Life doesn’t always go as planned, and many of us face financial setbacks at some point. Whether it’s the result of unexpected expenses, job loss, or other challenges, repairing your credit can feel like an uphill battle. But don’t lose hope! It’s still possible to rebuild bad credit. Keep reading for financial advice and tools to help you overcome obstacles and rebuild credit.

What is My Credit Score?

Before learning how to rebuild credit, it’s important to understand your credit score and how it works.

Your credit score is a snapshot of your borrowing habits and determines your creditworthiness. This three-digit number influences everything, from your ability to qualify for loans or credit cards to the interest rates you will pay.

Credit scores generally range from 300 (considered poor) to 850 (considered excellent). They are determined by five key factors, including:

• Payment History (35%) — Paying bills on time impacts your score the most.
• Credit Utilization (30%) — This reflects how much of your available credit you are currently using.
• Credit History (15%) — Longer credit history generally improves your score.
• Credit Mix (10%) — A combination of credit types, like credit cards, loans, and mortgages, positively impacts your credit score.
• New Credit (10%) — Submitting too many credit inquiries over a short period can slightly lower your score for a bit. It signals that you might be desperate for money, which is considered risky financial behavior.

The two most common credit scoring models are FICO and VantageScore. While they have some minor differences, they still focus on the same fundamental factors we have outlined above.

For a more in-depth overview of credit scores, we recommend exploring our guide: “Understanding Credit Scoring: What Determines Your Credit Score?”

How Do I Rebuild Credit After Financial Setbacks?

The truth is, repairing credit doesn’t happen overnight. However, by deploying the following strategies, you will be well on your way!  

1. View Credit Report for Errors

Errors on your credit report can drag down your score unnecessarily. Request a free copy of your credit report from AnnualCreditReport.com and carefully review it for discrepancies. This may include incorrect balances or account information that don’t belong to you. If you spot any errors, dispute them immediately with the relevant credit bureau.

2. Prioritize On Time Payments

Payment history is the single largest factor affecting your credit score, so it’s crucial to prioritize making your payments on time. Set reminders or schedule automatic payments to make sure you don’t miss a deadline. And if you do forget a payment, call your creditor STAT. Sometimes, they will waive the late fee if you are quick enough to explain the situation and it’s your first offense.

3. Lower Your Credit Utilization Ratio

Credit utilization is the percentage of your available credit you are currently using. To increase your credit score, it's best to keep this ratio below 30%. For example, if your credit limit is $2,000, aim to keep your balance under $600 to achieve 30%.

And if you can, request a credit limit increase, but only if you can avoid the temptation to spend more money. This will help you maintain a low credit utilization ratio.

4. Talk to Creditors About Payment Plans

Life happens, and sometimes payments may be difficult to manage. Contact your creditors directly to discuss payment plans or ask about hardship programs. You may be able to negotiate lower interest rates or more manageable repayment terms. Communication matters, and many companies will work with you if you are proactive.

5. Manage Existing Debts Strategically

Dealing with financial challenges often means managing debt effectively. Try the snowball method, avalanche method, or debt consolidation strategy for repayment:

• Snowball Method — Start by paying off your smallest debt first, then move on to the next smallest. This approach provides quick victories and helps you build momentum.
• Avalanche Method — Prioritize paying off the debt with the highest interest rate first (while still making minimum payments on all debts). This strategy saves you the most money in the long run.
• Debt Consolidation — Combine multiple debts into a single personal loan with a lower interest rate, making it easier to keep track of payments.

6. Find the Best Secured Credit Card

Did you know that some credit cards are designed to rebuild bad credit? Secured credit cards make great financial allies! Through these cards, you provide a refundable security deposit which serves as collateral on the account and becomes your credit limit. This minimizes risk for lenders and gives you the opportunity to prove your creditworthiness.

If you are rebuilding your credit with a secured credit card, consider Credit Builder¹ from Armed Forces Bank. The Credit Builder card rewards your positive credit activity by reporting to all three credit bureaus, meaning your rebuilding efforts are added to your credit report.

How to Rebuild My Credit at Armed Forces Bank

At our military bank, we understand how challenging it can feel to rebuild credit after setbacks. That’s why we created tools and resources to help you overcome your financial obstacles.

• Rebuilding Credit with a Secured Credit Card — As one of the best credit cards for building credit, Credit Builder¹ from Armed Forces Bank provides a simple and straightforward way to rebuild your credit. It’s also easier to qualify for compared to other credit cards.
• Consolidating Debt with the Access Loan — Armed Forces Bank’s Access Loan² is the perfect solution for merging your debts into one manageable payment. Plus, it offers better loan terms and interest rates.
• Strategizing Repayment with Financial Calculators — Make an informed decision with help from the Credit Card Payoff Calculator, Personal Debt Consolidation Calculator, and Managing Debt Calculator. Because everyone could use a little extra guidance!

Rebuilding your credit doesn’t have to be a solo mission. Get back on solid ground with your military bank!