How Long Does It Take to Improve Your Credit Score?

How Long Does It Take to Improve Your Credit Score?

How Long Does It Take to Improve Your Credit Score?
Reading Time: 6 minutes
The culture of buying today and paying later is popular in the US. A report released by the American Bankers Association in 2019 revealed the existence of 374 million credit card accounts in the US as of mid-2019. This means that about seven in ten Americans have at least one credit card that they use to purchase stuff. Unfortunately, almost half of the American adult population has been trapped in credit card debt—the backbone of your financial life. Bad credit can prevent you from getting a new credit or approved for a loan you need to cover the cost of something important. Obtaining a credit card from any of the leading financial institutions in America is easy as long as you have a good credit score. Your credit score is a number between 300 and 850 that is assigned by credit bureaus. The credit score depicts your creditworthiness, with 300 representing poor credit and 850 indicating a perfect credit payment history. Credit bureaus determine your credit score by analyzing your payment history. This includes all your credit files and any other financial information that can help shed light on your ability and willingness to make debt payments on time. A higher credit score comes with tons of perks, including access to loans and credit cards under favorable terms. 

Building a credit score doesn’t happen overnight! In fact, everyone enjoying the privileges of good credit started with a low score at some point. Your credit score will start improving organically when you undertake regular credit activities to build your credit portfolio. Even with deliberate efforts to establish a positive credit history, it’s impossible to predict when your credit score will flip in your favor. However, what is certain is that it takes more time to rebuild a damaged credit report than to start from scratch. The severity of the situation that left you with bad credit has a direct impact on the time it takes to rectify it.  Bankruptcies and charge-offs are highly damaging entries on your credit report that take a bit more time to shake off. As such, you should always strive to maintain a favorable credit score, and this write-up will help you do exactly that. Click-through to read more. 

How Soon Will Your Credit Score Improve?  

Establishing good credit takes time and a lot of financial discipline. Getting a rough estimate of how soon your credit score can improve requires some basic understanding of the factors that can either hurt or improve your score. For starters, paying your bills on time can go a long way in speeding things up for you. Your debt payment history can literally qualify or disqualify you from getting credit. Thus, credit scores are assigned based on your credit payment habits. Lenders are wary of individuals with poor payment history. Bad credit could mean that you have a habit of not making your debt payments on time or that you just don’t pay completely. The only exception is if you are starting your credit building journey. Paying off your debts as quickly as possible is a positive habit that can improve your score. People with perfect credit scores often pay their bills a couple of weeks before they are due. This is because paying your bills before they’re scheduled looks good on your credit report and subsequently on your credit score. On the other hand, missing your debt payments is a recipe for bad credit, which you should avoid at all costs.  Another positive habit that can scale up your credit score is keeping your credit card balance below the limit. A higher credit card balance negatively impacts your credit score. Also, just because you qualify for credit doesn’t mean that you should always apply for it. Opening multiple credit accounts within a short period could indicate that you are leaning too heavily on credit, and it can mean disastrous entries on your credit report. Check your credit report regularly to understand your position and whether there is something you can do about it. By exercising strict financial discipline, you can turn around your credit in six months or less, as illustrated below.  

Six Months to Establish Credit

Six months of timely payments and clearing or keeping your credit card balances low are enough to get you back on track. When a lender asks for your FICO score from any of the three prominent credit bureaus—Equifax, Experian, or TransUnion—they are basically trying to establish how risky you are as a borrower.  Lenders use borrowers’  scores along with other details on borrowers’ credit reports to assess credit risk and determine whether to extend credit. There is always some risk associated with lending money, and although financial institutions cannot possibly eliminate all the risks involved in lending, they can minimize risk by only loaning to individuals with good credit scores.  As mentioned above, building credit takes time and patience. However, it is worth noting that the period it takes to build your credit score depends on the reason you have bad credit in the first place. Achieving the recommended credit score takes considerably less time when you are starting from scratch than when you are mending the effects of bad credit behavior. In Canada, your credit scores generally range from 300 to 900. The higher your score, the better—if you have scores between 800 and 900, you’re in excellent shape. It takes approximately six months to establish good credit if you are just starting. However, individuals with damaging entries on their report, like charge-offs and bankruptcy filings, will need to be a little more patient and disciplined. Full recovery from bad credit imposed by failed payments and bankruptcy could take years. 

Rebuilding Credit Can Take Longer

Credit reports with negative entries like late or missed payments and bankruptcy will certainly drag down your credit score. Although it takes between three and six months to establish a desirable credit score, you’ll need more time to rebuild a credit score that has suffered the effects of the aforementioned negative entries. It could take years for you to soar back to your former glory. The process is rather long and requires a lot of financial discipline. You wouldn’t be making it any easier for yourself if you entertained the habits that put you in the awkward position. 

When Lenders Report Affects How Quickly Your Score Changes 

If you are in their good books, lenders can help you improve your credit score, but only if you are willing to take the necessary steps toward improving your credit. A lender may request a rapid re-score to credit bureaus and get your score re-evaluated based on new positive payment information. The result of the rapid re-score may be updated within days. 

Credit Utilization Is Usually a Quick Fix

Credit utilization refers to the amount of credit that you have already used compared to your credit limit as assigned by the lender. Credit utilization ratio is an important factor in determining your credit score. The higher the percentage of credit used in relation to the set credit limit, the lower your credit score. Taking necessary action toward lowering your credit utilization ratio will dramatically improve your credit score. 

More Debt May Not Always Be the Answer

Your level of debt accounts for 30% of your credit score, which highlights the importance of applying for credit only if you need it and have a solid repayment plan. Substantial debt hurts your credit and your ability to get approval for new credit cards and loans. 

Use Credit-building Products

Different products and services carry different weights when calculating your credit score. Some payment information is completely omitted from your credit report; therefore, you should try to use credit-building products if you want to improve your score.  

Become an Authorized User on a Credit Card

You build credit by using credit. Although you should live within your means and avoid borrowing to finance your spending, without a credit history, you will have a hard time borrowing in the future if you really need the extra money. Being an authorized user on a credit card will certainly enhance your credit score. When you become an authorized user, your account is added to your credit report, which will be used to calculate your credit score. This means that timely payments on the card will automatically be reflected in your re-evaluated score. 

Takeaway

When building credit from scratch, you need to use credit. To do this, you should open and use a credit card or pay back a bank loan. It will take you six months of positive credit activity to build enough history for a solid credit score. If you’re rebuilding your credit, you should pay down your debts on time, up your credit limit, keep all your old credit accounts open, and remove any incorrect or negative information from your credit report. 

Frequently Asked Questions

1. How long does negative information stay on your credit report?

This depends on the nature of the information. Negative information often stays on your record for at least seven years. However, some serious negative entries, like bankruptcy, can remain on your report for between seven and ten years. 

2. How long does it take to improve a credit score by 100 points?

How quickly you can boost your credit score by 100 depends on the circumstances that put you in bad credit. Strict credit discipline can easily earn you 100 points after at least 30 days. 

3. Is it true that after seven years your credit is clear?

Most negative information drops from your credit report automatically after seven years. When a bad entry lingers for more than seven years, you can always dispute it. 

4. What happens if I don’t like my employer’s 401k? 

If your employer-sponsored retirement plan isn’t any good, you may pitch them a better alternative. If they don’t buy your idea, hustle your way to retirement or contribute to your spouse’s plan if it is better than yours. 

Your credit score can have a big impact on your financial future. Sign up for Experian to get your credit score and credit report for free! Join millions of other Americans and get the tools you need to help understand, manage, and master your credit—in under 3 minutes. Checking your credit score with Experian won’t hurt your score.

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