How To Rebuild Credit Score For Free

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Sunday, January 9, 2022

 A few years ago I went through some rough times and used cash for everything which caused my credit score to drop dramatically. Things started getting better and I thought it would be a good idea to try to get my FICO score back up so I can start earning rewards from my purchases and eventually get a loan for an investment property. I followed a very simple approach to rebuilding my credit that should work for everyone and I'm going to share it with you for free.

My credit scores started out as "Good" but below average and when I was done my credit score is in the "Very Good" bordering on "Exceptional" range.

There is no quick fix but rebuilding your credit score is a a very simple process. You just have to show you can use credit responsibly over a long period of time. If you don't know how to use credit responsibly I'll show you how. I'll go into more details but basically you follow these steps to build your credit and earn rewards.

  1. Get a Discover IT Secured Credit Card
  2. Use the credit card for one of your regular budget items every month
  3. 5 days before the statement end date pay off some of the balance leaving no more than 30% of your available credit, preferably less.
  4. When you receive the statement, pay off the previous balance in full to avoid interest.
  5. After 12 months and your Discover IT Secured Card converts to a non-secured credit card, apply for another rewards card to earn more rewards.
If you follow these steps your credit should improve overall. Some months it may go down but at the end of the first year it should be much higher than when you started.

Step 1: Get Discover IT Secured Credit Card

If you already have debt make sure you make your payments on time and try to pay them down. If you don't have any loans or credit cards you can get a secured credit card.

Your credit scores (Equifax FICO, Experian, Transunion) are an indication that you use credit responsibly. That means you need to actually use credit, you have to not exceed the amount of credit you have available, and you have to make your payments on time. An easy way to get a credit account is to sign up for the Discover IT Secured Credit Card.

There are other secured credit cards but the Discover IT Secured Credit Card is one of the few secured credit cards out there that offers you rewards. It has no annual fee, 2% cash back for gas stations and restaurants, up to $1000 per quarter, 1% cash back on all other purchases and in the first year they will double all your rewards. Double check the terms on this page but that's basically the rewards I got when I applied. This is an easy card to get if you have no credit history or even if you have a bad credit score.

How does The Discover IT Secured Credit Card Work?

A secured credit card works like a normal credit card except you have to provide a deposit to the credit card company. For example if you pay a $500 deposit to the credit card money you may only get a $500 credit line. You can charge up to $500 on the card. At the end of the statement period (every month) you will be given a minimum amount to pay, and any portion you don't pay will accrue interest, but if you pay the bill in full there's no interest. With the Discover IT Secured card you'll also earn rewards.

How much should you deposit for the Discover IT Secured Credit Card?

Our main goal here is to build or repair credit scores. To do that you have to show you use credit effectively so a good strategy would be to use the secured card only for something you normally budget for every month. It helps if it's something that's consistent, like your cell phone bill or other utilities. I decided to use my card for my groceries so I used my monthly grocery budget for my deposit, plus a little extra for wiggle room. I'll use $500 as an example but if that's too much for you, you can deposit as little as $200 and this process still works.

What if you get Declined For A Secured Credit Card?

There are some cases which you will be declined for a secured credit card depending on what's in your credit report. If this happens, it's important to make sure you make all payments on time for any debt you currently have. That will eventually start raising your score. If you don't have any loans but still have credit cards you can use the techniques to build your credit score with your existing cards. If you don't have any cards you can apply for a Credit Builder Loan from You basically take out a loan, and make a deposit in the amount of the loan in a Certificate of Deposit account (CD). Make monthly payments for 1 year, at the end you get the money back from the CD. You lose some money in fees and interest but you get to have an installment loan show up to the credit reporting agencies for 12 months. After 12 months try the Discover card again if your credit score has improved. Even if you do get a secured card you may still want to get the Credit Builder Loan because it's good to have different types of credit.

Step 2: Use The Secured Credit Card Regularly And Monitor The Balance

Your credit line is not income! Just because you have access to this credit doesn't mean you should treat it like a windfall. What you want to do is take something you're normally paying for in cash (check or debit card) every month and change to paying that first with your credit card, then pay that off every month.

As I mentioned I chose to use my secured card for groceries, every time I went to the market I would make my purchases on my card. I'm pretty consistent every month with how much I spend on groceries, one of the by-products of watching what I eat is that my meals are very consistent each week.

You might be better off using the card for gasoline or restaurants (if you already have to eat out) since you get twice the rewards compared to groceries but at the time I didn't eat out much and I mostly filled up at Costco which only takes Visa. The few times I did eat out I used the card.

Keep an eye on your balance to make sure you don't go over your credit limit. Always know how much you have available on your card before you go shopping. It's a good idea to download the app for your phone and enable alerts to let you know when you make purchases and when you get close to maxing out your credit limit.

If you're bad at managing your money

Here's a helpful financial tip If you're the type of person that spends money if it's in your checking account, create a separate checking account (or savings account if you can't have 2 checking accounts) at same bank as your main checking account and link them so you can make transfers online easily. Once a month, or whenever you get paid, move money so that you have cash deposited for your bills in one account, and move any money that might be extra into another account. Use the second checking account and debit card for other items and don't dip into your budgeted expenses account.

Step 3: Leave less than 30% of your available credit on your statement balance

One of the factors that determines your credit score is your credit utilization. This is the percentage of your available credit you are using. If you have $1,000 available credit and your credit card balance is $250 on your statement, your credit utilization will be 25%. You want to keep your credit utilization below 30% but I found that keeping it below 9% did even better.

Keep in mind you can use more than your desired utilization every month. If you have $1,000 in available credit you can use the full amount to maximize your rewards. You just need to pay your balance down before the statement closes. I chose 5 days before the statement close date to give me time to transfer money if I needed. The payment from my bank to the credit card takes at least a day.

I set a Google calendar entry that would remind me every month, 5 days before the credit card statement period would end so I could pay off most of my balance. The statement end date will be on your account but before you get your first bill you can contact customer support to find out when it is.

In my example if I had a $500 credit limit on my secured card, and no other credit cards or other credit lines, I would pay off whatever balance I had so it brought me down to no more than $150 (30% of $500) or in my case I would keep it under $45 (9%)

Keep in mind, if you only have $200 to deposit, you can still use your card for more than $200 every month. There's nothing stopping you from logging into your account and paying off your bill early. If you spend less than $100 a week on gas for example, you can use the card for gas and pay off some of it every week to keep you under your credit limit. You get rewards for purchases, not what's on your balance at the end of the month so the more you use your card the more rewards you get.

Step 4: Pay your balance in full every month

When the statement closes, pay off any outstanding balance in full so you don't get charged any interest. You can wait for the paper bill to come in but I found it better to just log in and pay it online early so I had more available credit to use for the current month's purchases. If something happens and you can't pay the bill off in full then at least make the minimum payment but your goal should be to make money in rewards, not lose money in interest.

You can use your rewards to pay down your balance, but you have to pay the minimum amount first. I decided I would just bank my rewards until the end of the year and use it to reward myself with something I wanted.

When you log into your account you can also check to see how your credit score is doing.

Step 5: Wait for your Secured Card To Convert To a non-Secured Card.

On the 7th month, Discover starts to perform monthly reviews on your account to determine if your secured credit card can be converted to to a non-secured card. If this happens you will get your deposit back and if you have provided them with your income information (which is optional) you'll most likely get a credit limit increase. 

If you've been using your credit card regularly and paying off your balance in full every month, not missing any payments on this card or other debt, and you don't have any major dings on your credit report this should happen quickly, for me it happened on the first review. If you've had poor credit history this may take longer. Continue with these steps to keep building your credit score up.

Even when you get switched to a non-secured credit card, continue to use your Discover card responsibly to maximize your rewards for 12 months. At the end of 12 months, they will double the rewards you earned. Also take a look at their Discover It Chrome card benefits. In my case, it was better to switch. They don't send out a new card, just change the account settings. 

If your credit limit increases, the nice thing is that the maximum you can leave on your card to have your utilization under 30% (or 10%) also increases. So let's say credit limit increase to $5,000 for example, 30% of that is $1,500 and 10% is still $500. When my credit limit increased, I didn't use the card for more than I did before so my usage was less than 10% at the end of the month. That way I didn't always have to pay it down before the statement.

Step 6: Apply for the Chase Freedom Flex Rewards Card

If you've had 12 months of responsible credit usage and your Discover It Secured Card has been converted to a non-secured card, that's a good indication that you may be able to qualify for another non-secured credit card. You don't have to but you can find a card with better rewards. If it's been 12 months but you haven't been converted, keep chugging along the steps above. A new credit inquiry will lower your score temporarily.

I went with the Case Freedom Flex rewards card. At the time I'm writing this you get a $200 bonus after spending $500, 5% rewards on bonus categories that change every quarter, 5% off travel purchased through Chase Ultimate Rewards, 3% off restaurants including takeout and delivery services, 3% at drugstores, 1% off all other purchases.

If you get the card, continue following the same steps of making sure you use your card for purchases you can afford to pay off that month, your credit utilization is low before the statement period ends and you pay at least the minimum payment on time every month and you pay off the complete balance to prevent getting charged interest.

If you follow these steps you'll have made some money in rewards, increase your credit score which will help you qualify for more credit  such as a home loan at lower interest rate. If you have any negative marks on your credit report such as missed payments, bankruptcies, etc. they will eventually come off after 7 years 

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