How long does it take to repair your credit score?
Your credit score is like a financial report card that tells lenders how reliable you are when it comes to paying your bills. If you’ve made a lot of mistakes, like not making payments on time or racking up debt, your score will reflect that. But the other side of the coin is also true: responsible payment behavior will cause your credit score to rise again.
How long it takes to get a good credit score will depend on where you start, what kind of negative information is on your credit report, and how quickly you’ll be able to pay off your debts. While you can’t fix your credit overnight, you’ll see your score increase over time if you work to pay off your debts and make your payments on time.
Here’s what you need to know about how long it will take to repair your credit and what steps you can take to get started now.
What is a bad credit score and why is it important?
There are hundreds of credit scores, but the two most common credit scoring models are created by FICO and VantageScore. FICO considers a credit score between 300 and 579 to be “bad,” while VantageScore considers a “bad” credit score to be between 500 and 600, according to credit bureau Experian. According to the VantageScore model, a credit score between 300 and 499 is considered “very poor”, while FICO does not have a separate “very poor” category. Keep in mind that your score may also vary with each of the three consumer credit bureaus – Equifax, TransUnion and Experian – all of which collect and report information independently of each other.
Having a bad credit rating can affect your life in many ways. “Every time you apply for a mortgage, a car loan, a lease, it will affect your payment. You’re going to end up paying a higher interest rate,” says Jessica Weaver, CFP, CDFA, CFS and author of “Confessions of a Money Queen.” Bad credit can even affect employment and housing, adds Weaver. Some employers check your credit score during the hiring process, and landlords use your credit score to determine if you qualify to rent.
You could be denied a loan or a credit card if you have bad credit, says Nathan Grant, senior credit industry analyst at Credit Card Insider. Even if you’re approved, “you’ll get worse financing terms than you can get and lower credit limits,” he adds. Bad credit can also affect your insurance rates.
Overall, bad credit can make your life more expensive, says Weaver. People on a budget should take special care in maintaining good credit to avoid unaffordable financing options.
What leads to bad credit?
Your credit score is a reflection of your credit history, and any derogatory mark on your credit report can lower your score. These include:
- Late or missed payments: Your payment history is the most important factor in determining your score, and delinquencies remain on your credit report for seven years.
- Accounts debited: This happens when a credit card issuer closes your account for nonpayment and you still owe the balance. It’s one of the worst derogatory marks you can get.
- Accounts in collections: If you don’t make payments and your lender or issuer sells your debt to a third-party collector, the status of that account will show up on your credit report and cause your rating to drop.
- Loan default: Failure to repay a loan will significantly damage your credit.
- Bankruptcy: Bankruptcies are the ones that take the longest to recover. Chapter 13 bankruptcy stays on your credit report for 7 years, while Chapter 7 bankruptcy stays up to 10 years.
- home foreclosure: If you’re behind on your mortgage payments, your lender could foreclose on your home, further damaging your credit.
- High balances or maximum cards: Having a high credit utilization rate or using a large percentage of your available credit will negatively impact your score. Try to keep your credit utilization rate below 30%, if possible.
- Closing of credit cards: Closing old cards will reduce the age of your credit history, and closing a card with a high limit will increase your credit utilization rate. Both could negatively affect your score. You should only consider canceling a credit card if it has an annual fee and you are no longer using it.
- Asking for too many cards or loans in a short period: Applying for new credit results in a small temporary drop in your credit. Getting a new card every two years won’t be a problem, but asking for one card after another will hurt your score.
You can check your credit report for free every year on AnnualCreditReport.com, the only source authorized by federal law to provide free credit reports from each of the three credit bureaus.
How often is your credit score updated?
Your credit score is based on the information in your credit report. Whenever something changes on your credit report, that’s when your credit score is usually recalculated, says Grant.
Your credit card company will typically update the credit bureaus once a month with your account details, matching each new credit card statement, he adds. So if you’re working to improve your credit, it’s a good idea to check your score on a monthly basis.
How long does it take to repair or rebuild your credit?
“It’s often possible to get a higher credit score in 30 days or less,” says Grant, but don’t expect your credit score to go from fair to excellent in that time. If you’ve had a major setback, it usually takes about one to two years to repair your credit, according to Weaver.
But it depends on your personal situation. For example, FICO research shows that it takes about five to ten years to recover from bankruptcy, depending on your credit score. If you’re 30 days behind on a mortgage payment, you can fix your credit in about 9 months to three years. The higher your score was at the start, the longer it will take you to fully recover from the setback.
You should start the credit repair process as soon as possible so that you are ready the next time you need to apply for new credit. “If you’re planning on buying a house, a new car, starting a business, in six months to a year, start looking at your score and your report,” says Weaver.
The fastest ways to improve your credit score
Although repairing your credit score takes time, there are steps you can take to speed up the process:
- Fix errors in your report: If you notice errors on your credit report, such as incorrect balances or accounts that don’t belong to you, disputing those errors and having them removed from your credit report could quickly improve your credit score.
- Request a credit limit increase: Depending on your issuer, you can request a credit limit increase online. You can also call customer service. If you’ve made payments on time but are using a large portion of your available credit line each month, this could be a way to lower your credit utilization rate and improve your score.
- Repay the debt: Paying off debt is another effective way to improve your credit score. “Right away, prioritize paying the most you can afford within your budget while avoiding any late payments,” says Grant. A popular strategy is the debt avalanche method, which involves going after your most valuable credit cards first.
- Make payments on time: The longer you can maintain regular and on-time payments, the more you will see an improvement in your score. If you tend to be forgetful, set up automatic payments – just make sure you keep a budget and have enough in your bank account to cover the costs, so you don’t get hit with overdraft or overdraft charges. repayment.
- Change your consumption habits: If you find yourself in a cycle of debt and your balances aren’t being affected, you should take a step back and look at your overall finances and spending, Weaver says. “Stop adding to that credit card while you’re paying it off,” she says. Use a cash-based budgeting system while you control your finances. Once your debts are paid off, you can focus on using your credit cards responsibly so you don’t get into trouble again.