Short answer: It can take time to improve your credit score. But it’s worth it.
Bad credit sucks. This sticks to you with high interest rates on credit cards and loans – assuming you get approved at all – and it can impact your ability to find a job, an apartment, or even a phone plan. affordable mobile. The good news is, you don’t have to be stuck with bad credit forever. You can improve yours by understanding the factors that influence your score and making responsible financial decisions for the future.
How long will it take to improve your credit score? It depends on where you started and what score you hope to achieve. It may only take a few months or it may take several years. You can’t undo what you’ve already done, so you have to wait until the old black marks are gone from your credit report. But you can speed up the process by making smarter decisions from now on.
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What is a bad credit score?
Before we get to the factors that influence your score and how to improve it, we first need to define which credit scores need to be improved. The two most popular credit scoring models are the FICO® score and the VantageScore. Both use a scoring system that rates people from 300 to 850, with a higher score being better.
To give you an idea of what constitutes a bad credit score, FICO defines a score between 580 and 669 as “fair” and a score between 300 and 579 as “poor”. VantageScore defines the limits a little differently, defining a score between 601 and 660 as “almost prime” and a score below 600 as “subprime.” To complicate matters a little more, each lender has their own criteria and even if your credit score is above this range, your application can still be refused.
You won’t know what credit rating lenders are looking for, so you should aim for a score in the 700 or 800 range to be safe. This is pretty universally considered to be good credit and you should have no problem getting loans or credit cards if you fall within this range. Since FICO considers scores below 670 to be fair or poor, you should aim to improve yours if it falls within that range.
How Long Does It Take To Clear A Bad Credit Report?
Developing new, more responsible habits is the first step towards improve your credit, but your bad credit history will not go away overnight. Late payments, repossessions, foreclosures, written off accounts, and civil claims judgments all stay on your credit report for seven years. Chapter 13 bankruptcies also stay on your report for seven years, while Chapter 7 bankruptcies remain on your report for 10 years.
You’re unlikely to achieve a sterling credit score until all of those old negative things are gone from your credit report, but that doesn’t mean you’re seven to ten years away from a decent score. . Credit scoring models give more weight to your more recent credit history. So a late payment will hurt you a lot if it happened in the last month, but if it is five years old and you haven’t been late for payment since then it won’t have as much of a problem. ‘impact. If you are able to demonstrate that you are turning a new leaf, lenders might be willing to work with you at this point, although there are still a few negatives on your report.
How to improve your credit score
Improving your credit is pretty straightforward once you understand the top five factors that affect your credit score. Your payment history is the most important; it represents between 35% and 41% of your score, depending on the scoring model you are looking at. Paying your bills on time every month is one of the most important steps you can take. Setting up automatic payments or reminders is a great way to do this.
If part of the problem is that you don’t have enough money to pay what you owe, you’ll need to make some changes to your budget, either reducing discretionary spending, increasing your income, or both.
Your credit utilization rate is the other important player in your score, accounting for 20 to 30% of the weight in your calculation. This primarily examines credit cards, specifically the relationship between your average monthly spending and your credit limits. Lenders do not like to see you use more than 30% of your credit limit each month because it indicates that you cannot support your lifestyle without relying heavily on credit.
Lowering your ratio is pretty easy as long as you don’t have a balance. You can spread your spending across multiple credit cards so your monthly spending on each stays below 30%, or just use cash more often and your cards less. Asking for a credit limit increase is another option, but your card issuer may deny you if your credit score is already bad. You can also pay your bill twice a month. Credit bureaus only receive balance and payment updates once a month, so if you pay off your balance halfway and again at the end of the month, it will appear that you spent less than you did. never did.
You may find it difficult to reduce your credit utilization rate if you have credit card debt because each month it will show that you are using up a large part of your available credit. In this case, work to pay it off. Use your available money each month to pay off your debts and use a balance transfer card to temporarily stop your balance from growing. Also pay year-end bonuses, tax refunds, and other windfall profits on your debt until it’s paid off. Then, avoid going into debt or you’ll find yourself in the same situation as before.
The other three key factors that influence your credit score are your credit mix, the average age of your account, and the inquiries on your report. Your credit mix refers to the different types of credit accounts in your name. Lenders like to have some experience with revolving debt, such as credit cards, and installment debt, such as a mortgage or mortgage. Personal loan. But that’s only about 10% of your credit score, so it’s no big deal if you only have one type of credit. Don’t take out new loans that you don’t need just to increase your credit mix.
Over time, the average age of your account will increase, assuming you don’t close your old accounts. It’s usually best to leave older credit cards open even when you’re not using them, unless they charge an annual fee. You can use them as a backup if your main credit card is stolen and they will help the average age of your account. If you are going to close credit accounts, try to limit yourself to one every six months or so to minimize the impact on your score.
Difficult investigations happen every time you try to open a new credit account and they lower your score by a few points. It’s okay if you’re approved, but if you’re not, you are costing yourself for no reason. Too many inquiries can indicate someone is heavily dependent on credit, so don’t apply for new credit cards too often. For loans, the credit bureaus make an exception for rate purchases. This means that all requests that take place within 14 to 45 days, depending on the credit scoring model, are considered one request. This will minimize their effect on your score, as it is considered standard practice to shop around before taking out a loan.
What’s the best way to rebuild credit?
All of the above factors are important for increase your credit score. But what if your score is so bad that you can’t find a lender willing to give you a chance to show you’ve changed? If you can’t get a loan or a credit card anywhere, there are still a few options.
A secure credit card is one of the most popular options. This is a regular credit card, but it usually has low credit limits – a few hundred dollars or less – and you have to make a security deposit equal to that credit limit. If you don’t pay back what you owe, your lender keeps the security deposit. Because there is no risk to lenders, secured credit cards are open to people with poor credit, and regular, on-time payments can help boost your score over time. If you decide to cancel the card later and you do not have an outstanding balance, your card issuer will refund the security deposit to you.
Another option is a manufacturer credit. This is a type of installment loan specifically designed to help you rebuild bad credit. These loans are for small amounts – $ 3,000 or less. You take out the loan and your lender puts the money in an account that you cannot access immediately. You make regular monthly payments with interest, just like a regular loan, and when you’ve paid it off, the lender releases the amount that was left in the account. This strategy will cost you a little money in interest, but it gives you the opportunity to demonstrate that you can borrow money and meet your payments.
Ultimately, the best way to improve your credit score is the easiest way to maintain it in the long run. If you already have credit cards or loans, start with them. Make an effort to pay on time, pay off existing debt, and limit the amount you charge to your credit cards each month.
It will be months before you see a significant increase in your credit score, but stick with it. As your more recent payment history takes hold and the negative ratings on your report disappear, the winds will start to shift in your favor.
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