How Long Does It Take To Improve Your Credit Score?
It can take a long time to for your credit score to go up, but these tips on how to raise your credit score will help you get started right away.
Improving your credit score may qualify your business for competitive loans or good credit cards, saving you money in the long term. Unfortunately, if you have poor or fair credit, you may be left wondering how long it will be before your credit score goes up.
Want to know how long it takes to improve your credit score? Our guide below has you covered!
Table of Contents
- How Is Your Credit Score Determined?
- How Long Does It Take To Improve Your Credit Score?
- The 6 Best Ways To Improve Your Credit Score Fast
- Monitoring Your Personal & Business Credit Scores
- FAQs: How Long It Takes To Improve Your Credit Score
- It Takes Time To Increase Your Credit Score
How Is Your Credit Score Determined?
Before you can determine how much time it will take to boost your credit score, you have to consider its components. Your FICO credit score is determined by assigning weighted values to a number of different criteria including:
- Payment history
- Amount owed
- Length of your credit history
- Your credit mix
- New credit you’ve recently received
Of the factors that determine your credit score, payment history is the most heavily weighted, accounting for about 35% of your score.
Payment history measures how often you make payments on time, how often you miss payments by 30 days or more, and whether you have any bankruptcies in your history.
Credit Utilization Rate
The next most heavily weighted factor (30%) is the amount of debt you have outstanding. You may have heard the term “credit utilization,” which is one of the most important parts of this measurement. Your credit utilization ratio represents the amount of your credit that’s currently being used. Basically, you divide the sum of all your balances by the sum of all of your credit limits.
This number can vary a lot even within a given month, causing minor fluctuations in your credit rating. If your credit utilization is over 30%, your credit rating may take a hit.
Credit History Length
Your credit history length is the age of your existing accounts. If you’ve had a credit card in good standing for many years, it will reflect positively on your credit rating, for example. It accounts for around 15% of your score.
Building credit history takes time, so while it can help your credit score over the long run, it’s not a quick fix.
Your credit mix looks at the types of credit that have been extended to you. Categories may include things like credit cards, loans, lines of credit, etc. While it isn’t always the case, a variety of credit types may work in your credit score’s favor.
Credit mix accounts for 10% of your score.
You may have heard that credit checks can impact your credit score. New credit is the part of your score that is affected by hard pulls on your credit. Too many hard pulls within a short period of time may bring down your credit score.
New credit accounts for 10% of your score.
How Long Does It Take To Improve Your Credit Score?
Now that you have a sense of what your credit score is made up of, we can take a closer look at how long it takes to recover from issues that negatively affect those categories and see a credit score increase. As you might expect, some issues are held against you for a longer time than others. Bankruptcy is a bigger deal than closing a credit card account, for example. Trivial hits to your credit usually clear within a few months.
Determining how long your credit score will be negatively threatened by an action depends on the severity of the action. Based on information from VantageScore, a company that produces a credit score model, minimal negative actions will pose a 10% to 30% impact on your score, while moderate ones impact up to 50%. Major actions can affect up to 90% of your score.
Let’s look at some factors that affect your recovery time.
How Your Starting Credit Score Factors In
FICO treats high credit scores like a premium product. What that means is that it’s easier to retain a 680 credit score than it is a 780. According to FICO, it would take someone about 9 months to recover their 680 credit score after being 90 days late on their mortgage. By contrast, it would take an average of 7 years to return a customer’s score to 780.
Additionally, the first customer’s credit score would only fall about 60 to 80 points for that misstep, while the second’s would fall about 90 to 110 points.
Missing A Payment Or Defaulting On A Loan
As we outlined above, missing or defaulting on a loan payment will negatively impact your credit. The amount of time it takes to recover can vary from less than a year to 7+ years depending on your starting credit score and how badly your account is overdue.
Short Sale, Deed-In-Lieu, Settlement, Or Foreclosure
Falling behind on your real estate investment can open up a complicated set of options, some of which have a more significant impact on your credit than others.
Generally speaking, however, you’re looking at about a 3 – 7 year recovery, with foreclosures taking longer to fall off than short sales, settlements, or deeds-in-lieu.
How Bankruptcy Impacts Your Credit Score
As you might imagine, bankruptcy is weighted quite negatively on your credit score, taking anywhere from 5 – 10 years to recover from. It’s also a good way to send your credit score down into the 500s, regardless of where it started.
That said, if your score is already very poor and continually being hammered by past due reports and maxed out credit utilization, a bankruptcy may actually improve your credit score slightly. Just remember, it will be weighted on your record for quite some time.
The 6 Best Ways To Improve Your Credit Score Fast
While it usually takes a while for your credit score to change for the better, there are a few things you can do to improve it rapidly. For a deeper dive into the subject, read our guide to improving your business credit score.
1. Pay Down Your Credit Card Balances
If you find yourself with a hefty credit card balance, paying it off can give your credit score a boost. Remember that keeping your credit utilization under 30% should have a positive impact on your credit score. Not only that, but it can save you a lot of money in interest.
2. Schedule On-Time Payments
If you’ve missed payments because you’ve forgotten to make them, an easy way to correct the issue is to schedule payments using automatic debits.
Just make sure you keep enough money in your bank account to cover your automated payments. You don’t want to add overdraft fees to your list of problems.
3. Keep Old Credit Accounts Open
If you don’t have any particular reason to close your accounts, keeping them open can help improve your credit history length, even if you rarely use them. Remember that unused credit capacity works in your favor.
4. Request An Increase In Credit Limits
Another way to improve your credit utilization ratio is to request an increase in your credit limits. So long as you don’t raise your usage by an equal or greater percentage, you’ll effectively improve your ratio.
5. Consider Linking Alternative Payments
If you check your credit report, you’ll probably notice that it reflects only a fraction of the bills you pay monthly. Your rent, your utility companies, and your subscription services are probably missing in action. But don’t they demonstrate your ability to pay your bills on time?
If you want to add a few points to your credit report and don’t mind giving up some additional personal information to the credit bureaus, you can use services like Experian Boost to voluntarily report your bills. Just be aware that some of these services charge a fee, so factor in how much those extra points are worth to you.
6. Get A Secured Credit Card
One of the easiest ways to improve your credit is to build credit with a credit card. But if your credit is so deep in the gutter that you’ve had difficulty getting a normal credit card, you should consider getting a secured credit card. Secured credit cards function like other credit cards, with one major exception: when you sign up for them, you make a security deposit that covers some or all of your credit limit.
It’s sort of like loaning money to yourself to build your credit. It can also be an effective on-ramp to a standard credit card. Read our guide to the best business cards for bad credit for more information.
Monitoring Your Personal & Business Credit Scores
When you’re working on improving your credit score, knowing how to monitor changes is crucial. Luckily, there are several free credit score websites you can use to do so.
Some of the best names in the business include Credit Karma, Discover Credit Scorecard, and WalletHub. Each of these sites will provide you with a basic credit score. However, because each site pulls its information and calculation models from different sources, you may find it’s best to check your scores across multiple sites.
You’re also able to request a free credit history report from each of the three major credit bureaus every year. Check out our credit bureau guide for how to do that. While these reports won’t give you a simple credit score, they will show your complete credit history. This can be helpful in spotting errors, and you can also better understand what potential creditors might be looking at in the future.
You should also know how to dispute errors on your credit report. Should you win your dispute, you could receive a quick bump to your credit score. Of course, the entire dispute process might take well over a month before everything is all said and done.
FAQs: How Long It Takes To Improve Your Credit Score
It Takes Time To Increase Your Credit Score
So, how fast can you raise your credit score, realistically speaking? For the most part, the answer to how long it takes to improve your credit score is “longer than you’d like.” You may not be able to turn it around overnight, but through smart planning and diligent credit use, you’ll be well on the road to increasing your score. Once your score rises, you’ll be able to apply for better credit cards and lower-interest rate loans, letting your business build at a faster pace.
We’ve focused on personal credit card scores with this article. Check out our guide to business credit scores for more information on that topic.