How Long Does It Take to Rebuild Credit Score

In various online community platforms such as Quora and Reddit, many people have been asking the difference between credit scores and credit reports now and then, meaning that the two are confusing. Well, credit scores refer to the creditworthiness of an individual while credit reports generally show your loan repayment behavior. It shows how capable an individual can pay a loan as per the agreement. Poor credit card utilization makes you have poor credit scores. However, there are ways you can use it to improve your credit scores. But how long does it take to rebuild credit?

Various factors affect the credit scores someone has within a given time. The time you pay your debts, your credit utilization ratio, the number of credits you have taken, your credit history, and new credit card inquiries directly impact your credit scores. If you have been paying loans and lines of credit appropriately, you will likely have good credit scores since your payment history contributes a lot to your overall credit scores.

Another portion that contributes big to your credit scores is the amount owed. If you have so many unpaid debts, then you are likely going to have low credit scores. You should not confuse the amount owed with having many types of credits. If you have many credits, such as mortgage loans, lines of credit, and auto loans, and are paying on time, that is even advantageous to your overall credit scores.

Who calculates credit scores?

Three main bodies are entrusted with credit score calculation. They are called credit bureaus and include the following.

  • Experian
  • TransUnion
  • Equifax

All credit bureaus operate independently, and financial institutions have to report loan payments to the credit bureaus every month. The credit bureaus use several pieces of information to come up with your credit scores. They also compile various information about your loan and line of credit repayment to come up with a credit report.

Which factors affect your credit scores?

Various factors affect your overall scoring. They are the essential points to watch if you want to have commendable credit scores. Some people usually wonder how is the credit score calculated. The following factors are important during credit score calculation, and the concerned bodies usually rely on them to come up with your credit scores.

1) The payment history

Your payment history shows how you have been paying loans in the past. Paying loans on time increases your credit history and vice versa. Moreover, paying the right amount of money at the right time is highly recommended.

Your payment history contributes up to 30% of your overall credit scores. You can see how the percentage is so significant that things can go wrong if you mess up with it. You, therefore, need to pay all your debts on time and the agreed amounts.

ii) Amount owed

As I said earlier, having many credits does not mean that you have a lot of money owed. However, if you have so many unpaid debts, that is very dangerous to your overall credit scoring. The amount owed contributes up to 35% of the overall scores. You can see how the percentage is so significant that you have to pay a lot of attention to it.

That means you should not accumulate a lot of debts past the payment dates, as that will pull you down. To grow your credit scores, pay each loan on the due date. Do not forget the early payment fees that some financial institutions charge. Maintaining a low credit utilization ratio of not more than 30% is also good to be on the safe side.

iii) Length of your credit history

The duration of time you have been using lines of credit or loans also has a significant contribution to your overall scoring. However, you must have been paying your debts well for your payment history to count. The longer your payment history, the more financial companies trust you. The payment history contributes up to 15% of your overall scoring.

iv) Credit mix

Credit mix refers to having different types of loans at a given time. If you get different types of loans and pay them on time, you will likely have good credit scores. Credit mix takes 10% of your overall scoring. You can take different types of loans such as student loans, personal loans, mortgage loans, auto loans, etc. When you mix various types of credits, you should also ensure that you pay them appropriately or harm your credit scores more instead of increasing them.

v) New credit

New credit here means new inquiries. If you apply for a loan or line of credit, then the concerned financial institution makes a hard inquiry on your credit scores. Hard inquiries usually lower your credit scores to a given point. If you make so many inquiries over a given time, then your scores will be affected so much. New credit usually contributes 10% of your credit scores.

How do you build credit scores?

How Long Does It Take to Rebuild a Credit Score

You can build credit scores if you start taking loans and lines of credit. Someone who has never borrowed from any financial institution has no credit scores whatsoever. That means the person does not have any credit history. Various factors contribute to credit score building. I have mentioned some of them up there, but now I have to discuss them in detail for you to understand them well. You can rebuild your credit scores in the following manner.

1) Pay your debts on time

When you get a loan or line of credit, you usually agree on the payment dates. Those days are crucial if you follow them closely. If you pay your debts late, your credit card or loan issuer will report your late payment to the credit bureaus.

If you are not in a position to pay your loan on time, you should alert your loan issuer about your financial difficulties and ask them not to report your late payments to the credit bureaus. If you happen to pay your loans late, you should make an effort to clear all the debts to increase your credit scores.

If you want to know how to repair your credit score fast, then paying all your debts is a sure bet, although the scores cannot increase instantaneously.

2) Maintain a low credit utilization ratio

Maintaining a low credit utilization ratio is very important. It shows that you are responsible and know how to manage money well. When you ask for a line of credit from a particular institution, the loan issuer will be confident that you will pay the loan on time. Financial advisors usually recommend a credit utilization ratio of at most 30% of your line of credit.

3) Request to become an authorized user

If you have a relative or even friend with good credit scores and maybe you do not have credit scores or have bad credit scores, then you can request them to allow you to become authorized user of their line of credit. That way, you will gain credit scores as well as have a favorable credit report.

4) Apply for a secured credit card

A secured credit card allows you to gain credit scores when you pay your debt well. It is suitable for people with bad credit scores and those with no credit history at all. Secured credit scores allow you to deposit some money in your account and then borrow against it. If you are not able to pay your loan, your credit card issuer can then use the amount to repay your loan.

5) Get more types of credits

Having more types of credit increases your credit scores positively. You can get a credit card and obtain another type of credit such as a mortgage loan, auto loan, student loan, etc. If you pay them well, then you can impact your credit scores positively.

6) Involve a credit repair company.

Many credit repair companies in the country can help you grow your credit scores. You should look for the best credit repair company that meets your demand and have them take you through your credit repair journey.

How long does it take to rebuild a credit score?

The time taken to rebuild your credit score varies from one person to the other. Someone who has many credit report disputes may take longer than someone who has fewer credit report disputes. Also, someone may have many debts to clear compare to someone else. If they take long to clear loans, then it means that the time taken to improve credit scores will be longer.

The journey of building credit scores starts by downloading your credit report, which takes about half an hour. After that, you can review your report, taking 1-2 two hours depending on your understanding of the details. After that, you can write a dispute letter and gather the documentation required.

The process can take hours to up to a week, depending on your records. After that, you have to wait for 30 days maximum per dispute. Generally, it can take 1-6 months to rebuild your credit score, depending on the number of disputes you make.

Bottom line

Credit scores express the creditworthiness of a person. Credit companies use credit scores to determine the kind of loan to give you. You can develop lousy credit scores if you practice bad credit repayment techniques.

If you have bad credit scores, you can still rectify them if you follow the proper guidelines. You can hire a credit repair company or follow the necessary guidelines to rebuild your credit score.