One of the first questions that people ask when they start trying to build better credit is, “How long will it take?” It’s a valid question. We prefer predictability in as much of our life as we can get. We know it takes around nine months for a baby to be born, so we can start preparing our houses and finances for its arrival. If we set up a car loan over a 6 year payment plan, we can easily calculate how much we need to pay each month to stay on track. But with credit, it’s not always so simple.
Credit scores have a myriad of factors that come into play when they’re calculated, and the data points are different for each individual. One person may have a stellar credit track record, while another made some foolish decisions when they were young, and are now struggling to recover. To make matters even more complicated, even identical numbers between people will not necessarily impact their score the same way. There’s no “quick” or “simple” way to repair or improve credit. It could just take a few months, or it could take several years. In short – there’s no easy answer I can give you, and
What I can give you, however, are some general timestamps associated with different factors of credit, and some best practices to speed up the rate at which your credit improves. First, we’ll look at some positive attributes on your score, followed by some things to avoid.
Positive Contributors to Credit
When I say positive, I mean any action that will directly help your credit improve. Bear in mind – there are some things that you have to maintain at all times, that won’t raise your score, but if you fail to keep up with them, they will lower your score (missing a utility bill payment, for example). Here, I’m only going to cover things that will, without a doubt, directly contribute to raising your score.
A Solid Credit History
This is the big one – your credit history, more than any other aspect, will have the most to do with determining whether your receive a good score, or a poor one. In order to make this do the most for you that it possibly can, always pay your bills on time, and pay them off in full (or at least always make your minimums). Normally, it takes an average of three to six months for you to establish enough history to generate a credit report, and the longer you keep your record pristine, the better off you’ll be.
Diversifying Your Credit
To get a higher score, the credit bureaus want to see that you have access to multiple sources of credit, and that you’ve kept in good standing with all of them. One easy way that you can start diversifying your credit is to apply for and get a new credit card. Other examples of credit that you can tap into include mortgages, car loans, personal loans, and a line of credit through your bank. Keep in mind – applying for new credit will most likely result in a hard inquiry on your credit score, which can reduce it by several points. Wait four to six months between applying for new lines of credit to give your score time to recover.
Increasing Your Credit Limit
One of the factors that plays into your credit score is how much credit you have available at any given time. Having a high credit limit, in and of itself, doesn’t guarantee that you’ll have a high score, however. What will help you improve your score is to both raise your limit periodically, and still keep your overall utilization low. If you have $10,000 worth of credit, but you only spend $2,000 of it a month, you’re only spending 20% of your total credit, which will improve your score. You can either raise the limit on your current accounts, like your credit cards, or access new accounts, such as taking out a personal loan. This can take anywhere from three to six months to start raising your score.
Negative Contributors to Credit
We’ve covered some of the things you can do to raise your score, and the average time it takes to have an impact. Now, we’ll turn our attention to some factors that can negatively impact your score, with the average times it takes from these actions to clear from your credit report.
Late or Missed Payments
Earlier, I mentioned that keeping a clean credit history was essential for keeping a good score, and improving over time. The converse is also true – a history filled with missed payments, even late payments, will drag your score down faster than anything else. Typically, any missed or late payments you have will stay on your report for up to seven years, even if you have paid off the debt in full in the meantime. You can contact the credit bureaus and the organization you were late paying, and ask for that record to be deleted, but this isn’t guaranteed. Again – always pay your bills, on time and in full.
Foreclosure
One of the most traumatic and grueling experiences a person can endure, at least financially, having a bank foreclose on your home can set you back years, and in some severe cases, completely destroy a person’s life. What’s worse, foreclosure can bring a credit score down substantially, and will stay on your record for the next seven to ten years. While you can recover from a foreclosure, it’s a long, painful process, and will require you to make some hard decisions, and many sacrifices. Only purchase a home you know you can afford, and work with your lender to make a feasible repayment plan.
Over-utilization of Credit
Credit exists to help you buy things that you can’t afford all at once, but can comfortably repay over time. That being said, you need to avoid relying on credit to buy every single thing you want or need. When your credit utilization ratio gets in the 30 to 35% range, it stops helping your credit score. Once you exceed 50%, it will cause your score to slowly decrease. The bright side to this is that as soon as you’ve paid your debt in full, your limit will reset, and it won’t negatively impact your score anymore. Credit agencies tend to close their reporting period every 31 days or so, so if you paid your full balance after the closing date, it may take a full month before your score starts recovering.