Do you know what your credit score is? Most people don’t. 46% of Americans say they haven’t checked their credit score in months. What’s worse is that 15% of people don’t even have a credit score, while 11% of Americans have extremely poor credit.
If you find yourself with a bad credit score, it can seriously hinder you from reaching your goals. This could include buying a house, getting a new lease or loan on a car, or getting a personal loan.
So how long does it take to repair credit? And how can you start making progress? That’s exactly what we cover below.
Benefits of a Higher Credit Score
A poor credit score could prevent you from achieving your goals and moving forward in life. Your credit score is used to qualify or disqualify you from things such as:
- Mortgage on a house
- Car loan or lease
- Opening a credit card
- Opening a business credit card
- Personal loans
- Getting approved for an apartment lease
- College tuition for yourself or family members
- And much more
Even if you are approved for certain loans with poor credit, your interest rates will be much higher than if you had a better score. A mortgage, for example, could cost you tens, if not hundreds of thousands of dollars more in interest over the life of the loan than if you had a better credit score.
A poor credit score will negatively affect you in many ways. And it doesn’t just go away. Your score follows you your entire life.
If you ever dream of starting your own business, you’ll likely need a startup loan one day. Taking the time to understand your current credit score and how to improve it is vitally important for both you and your children in the long run.
A higher credit score can open the doors to more borrowing opportunities, improving your quality of life. It can also save you lots of money in interest in the loans that you are approved for. So what are the factors involved in your score, and how long does credit repair take?
Credit Score Factors
Before we see how long it takes to repair credit, it’s important to understand how a credit score is determined. The most important factors are your payment history, credit utilization, credit history length, credit variety, and new credit inquiries.
Your payment history is the most important factor when calculating your credit score. This is your ability to pay back loans. It shows how reliable and trustworthy you are when it comes to borrowing money.
Making payments on time each month is the best way to improve your credit score. Likewise, if you miss a payment, or are late, this will be the most significant way to hurt your score fast.
The credit utilization shows how much of your available credit is being used. If you have 2 credit cards, for example, each with a credit limit of $3,000, your total available credit is $6,000.
If you have a balance across the 2 cards of $3,000, your credit utilization score will be 50%, because you have used half of your available credit. Using more than 30% of your available credit is considered bad to lenders. Try keeping your balances under this number.
Credit History Length
Another important factor is how long you have had credit accounts open. If you’ve just opened your first account, your credit history will be very short.
That’s not enough time to develop a reputation for paying back loans. This, this score will be low.
When you’ve had open loans for many years, your credit history length score will rise. This happens most easily with a mortgage, student loans, or a no-fee credit card that you don’t use frequently.
Your credit variety, or credit mix, takes into account the number of different types of loans you have. This could include credit cards, a mortgage, an auto loan, student loans, and so forth.
You want to have a variety of different accounts open. If you only had credit card accounts open, this score would be low, since that’s only one type of credit.
New Credit Inquiries
Every time you apply for a new loan or get preapproved for a new offer, lenders pull your credit report. Some of these are considered “hard” credit pulls, while others are “soft” credit pulls.
Hard credit pulls are considered a credit inquiry and will show up on your credit report for up to 2 years. The more you have, the lower this score will be. Having too many inquiries shows that you are getting desperate to borrow money and might be financially unstable.
So how long does it take for a credit score to raise? Since each factor contributes differently to your total score, there are different timeframes. Here is the average credit raise time.
How Long Does It Take to Repair Credit?
Now that you have a better idea of what goes into a credit score, let’s see how long it into the credit repair time of each factor.
Have you missed a payment on a loan or were late making a payment? It could take 18 months or longer for this to come off your credit score.
Did you recently open a new credit account or close one by canceling or paying it off? It can take 3 months or more for this credit factor to rise.
Maxed out a credit card? This can have a big negative impact on your score. After lowering or paying this card off, it can take 3 months or longer for this scoring factor to improve.
Declaring bankruptcy can lower your credit score by 90%. It can take 7-10 years to repair your score after this.
Start Repairing Your Credit Today
When people first start looking at their credit score wanting to get a new house or car, it can be daunting to see a low number. “How long does credit building take,” is usually their first question. But now that you know how credit scores work and what factors to focus on, you can start making progress.
So how long does it take to repair credit? Well, you can start making progress today by not opening more accounts, making payments on time, and paying down debt as fast as possible.
If you start now, you can expect to see your score start to improve in as little as 3 months. Need help improving your score quickly?
We can help remove many derogatory factors from your credit report to repair your score faster. Get help today.