Your credit score can affect your financial and personal life in different ways. Your credit score not only determines the types of loan products you qualify for and the interest rates you receive, but it can also affect your job prospects, insurance rates, and even how easy it is for you to rent an apartment.
Certain events, such as a credit card default, can seriously damage your credit history. The good news is that if your credit score is not as high as you would like, there are very clear steps you can take to improve it. While these steps won’t dramatically increase your credit score overnight, they add up over time and have a big impact.
Keep reading to find out how to improve your credit score and how long it will take you to recover it after it has taken a hit.
How long does it take to fix credit history
Because lenders and other credit reporters, such as landlords, typically report your movements to credit reporting agents on a monthly basis, your credit score is also typically updated once a month.
Some actions on your credit report can affect your credit score almost immediately, while others have a much smaller effect that takes time to add up. For example, when it comes to a FICO credit score (the most popular credit scoring model), your payment history makes up 35% of your total credit score and is the most important factor in determining your credit score. The use of new forms of credit and a combination of different types of credit products is 10% of your credit score.
This means that if you miss a payment on your debt within one month (35%), it will have a much greater impact on your credit score than if you open a new credit account in the same period of time (10%) or improve your credit balance. . (10%).
If you’ve recently damaged your credit score, how long it takes to recover will depend on where the damage occurred. Let’s take a closer look at how long it can take to correct various scores regarding your credit score.
Credit report errors and high credit usage: One to three months
Mistakes happen in life and your credit report is no exception. Lenders may misreport information, and clerical errors and fraud may occur. It is recommended that you periodically review your credit report with each of the three major credit bureaus (Experian, TransUnion and Equifax) for errors. You can get a free report every year at AnnualCreditReport.com (currently free every week due to the pandemic).
If you find an error on your credit report, you can dispute it, and if the credit bureaus believe your dispute is accurate, they must remove the error from your credit report. It can take several months to dispute these errors and see a fix, so you may have to wait a while to see your credit score improve.
A high credit utilization rate can also hurt your credit score as it makes up 30% of your overall score. It’s best to keep your credit usage below 30% (the lower the better), so a quick way to improve your credit score is to pay off any existing revolving loan balances. After a month or two, you will see your credit score improve.
Complex requests: 12 to 24 months
A hard call (also known as a hard credit check or hard check) happens when you apply for a new loan product, such as a credit card or car loan, and the lender checks your credit report to see how creditworthy you are. Unfortunately, complex inquiries can drop your credit score by several points and remain on your credit report for up to two years (although they won’t affect your credit score after 12 months). Sometimes filing a property rental or utility bill leads to a complicated investigation.
There is nothing you can do on your end to speed up this recovery process, but you can minimize the negative impact of complex requests by obtaining pre-approval (this is considered a soft request and does not harm your credit history) before applying for a loan. loan product to get a good idea if you qualify or not. You should also avoid applying for new credit cards more than once every six months.
If you are looking to find a new loan product such as a mortgage, you can avoid more than one complicated request if you submit all your applications within the same time period (usually 45 days). Multiple attempts to get the same type of loan count as one tough request – credit bureaus recognize that you are looking for the best deal (which is reasonable) and not trying to get several new loan products at the same time.
Late payments: 18 to 24 months
Remember that your payment history makes up 35% of your credit score and is the most important factor in the FICO credit scoring model. This is because lenders want to see timely payments when determining an applicant’s creditworthiness. Late payments stay on your credit reports for up to seven years, and their impact on your credit score decreases over time. It may take up to two years before your account recovers from the damage caused by late payments.
The best way to reduce the impact of late payments is to keep other areas of your credit report strong and focus on making payments on time going forward. The more late payments listed on your credit report, the longer it will take to recover from them.
Along with making monthly payments on time, try to lower your credit utilization rate, improve your credit balance, and keep old credit accounts open to keep your credit history nice and long.
Foreclosures and bankruptcy: 7 to 10 years
If you experience foreclosure, a note of the event will remain on your credit report for seven years. After this time, the foreclosure will be removed from your credit report and will no longer count towards your credit history.
You will also see that Chapter 13 bankruptcies stay on your credit report for seven years after filing, but Chapter 7 bankruptcy stays on your credit report for even longer—10 years from the filing date. After the cancellation of any type of bankruptcy, your credit history will no longer be affected.
As with late payments, time is of the essence here, but you can take steps to improve other aspects of your credit history to balance the effects of foreclosure or bankruptcy.
bottom line
Rebuilding your credit history takes time, and it’s understandable if you’re feeling impatient. It is important to remember that all the steps you take to improve your credit score also help you develop healthy credit habits that will maintain your credit score in the long run.
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The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.
