Bad credit can happen to good people. Illnesses, accidents, job losses, bad luck, and other nasty surprises can leave even the most credit-savvy person struggling to make ends meet. Whether you got off to a shaky financial start as a young adult or watched helplessly as life did a number to your previously healthy credit history, you don’t have to settle for bad credit. Credit scores are constantly changing, and with a little time, effort, and discipline, you can improve yours. How long does it take to rebuild credit? That’s a tricky question to answer accurately.
How Long Does It Take to Rebuild Credit?
There’s no firm rule on what a good credit score is, but one thing is certain: A higher score is better. If you’re shopping for a home, you’ve probably learned that mortgage lenders generally have their own guidelines, but a score of 620 or higher will normally be viewed favorably. What if your credit score is below that benchmark? You’re not alone. According to The Motley Fool, some 20 percent of U.S. consumers had a FICO credit score below 600 in 2017.
If you’re interested in buying a home, you’re probably eager to raise your credit score. After all, a higher score can help you secure a lower interest rate and better loan terms. How long does it take to rebuild credit? To be honest, it depends.
Understanding Credit Scores
If you hope to rebuild your credit, it helps to know what goes into calculating your credit score. Credit.com explains that five factors are assessed to determine your FICO credit score:
- Payment History: Some 35 percent of your credit score is shaped by your payment history. Paying your bills on time will boost your score. Late or missed payments will bring it down.
- Credit Utilization: How much debt do you carry? How much credit do you have available? This matters because 30 percent of your credit score is determined by the relationship between your total debt and your credit limit.
- Credit Age: The length of time that you’ve been using credit forms roughly 15 percent of your credit score.
- Types of Credit: Have you utilized credit cards, car loans, a mortgage, or some combination of credit? Showing that you can competently use various forms of credit will help you shine for 10 percent of your score.
- Credit Inquiries: Too many questions from potential creditors in a brief span might suggest a problem, so credit inquiries are also factored in for 10 percent of your credit score.
Repairing Your Credit Score
What can you do to rebuild your credit score? WalletHub offers several helpful suggestions:
- Review your credit report. Identify the problem areas, dispute any errors, and commit to fixing any habits that are dragging your credit down.
- Pay down your debts. Paying current bills on time will strengthen your payment history. Paying off past-due debts won’t erase the stain, but it will prevent it from doing more damage to your credit.
- Build your savings. Having a rainy day fund makes you less reliant on credit in an emergency and can help you avoid future missed payments.
- Use a credit card wisely. Lenders want to see that you can use credit responsibly, and the only way to demonstrate that is to use credit and meet your obligations.
- Keep checking your credit report. A periodic peek at your credit report lets you see your progress and catch any mistakes.
How Long Does It Take?
How long does it take to rebuild credit? That depends on the state of your credit and what exactly is bringing it down. Some people with errors or minor issues can see a sharp rise in a few months. For others, rebuilding credit will take years. As Crediful points out, most strikes against your credit (such as late payments and foreclosures) will age off in seven years, but the maximum length of time that a negative item may remain on your credit report is 10 years. If the report is accurate and the proper procedure was followed, it’s hard to get a negative item like a bankruptcy, tax lien, delinquency, or foreclosure scrubbed from your credit report early. However, the impact does wane with time.
At PrimeLending: Manhattan, Kansas, we believe in personalized service. Our loan process isn’t focused on numbers. It’s about you. Your needs are our priority. We truly want to know what you need to achieve your homeownership dreams, so we’ll take the time to talk with you and help you explore your loan options. We offer a wide range of loan products and can provide you with expert insight, so it’s easy to find the ideal loan for your situation. Whether you’re interested in buying your first home, purchasing an investment property, or refinancing your current residence, reach out to PrimeLending today to discover how we can help you reach your goals.