Want to increase your credit score before applying for a big loan? If your credit has taken a hit, it’s possible to recover. Consumers with bad credit can get back to good and excellent credit scores, but it won’t happen overnight. Discover how long it can take to rebuild your credit and ways to accelerate your journey to a good credit score.
Why Should You Build Your Credit?
Your credit history offers a snapshot of how well you manage debt. Lenders will look at your score to see if you qualify for a loan. A low credit score will restrict your financing options and result in higher interest rates. For example, if you need an auto loan to buy a car, you will need to have a good credit score to take out the loan. A higher credit score will work in your favor, allowing you to get lower interest rates and higher loan amounts.
Not taking out a loan anytime soon? A credit score is still vital. Landlords look at your credit score during the application process to ensure you can keep up with rent payments. A high credit score can even help you save money on utilities. In addition, a high credit score opens up more opportunities, and the higher you get your score, the more money you will save.
How Long Does It Usually Take to Rebuild Credit?
The credit-building journey is different for each person, but prudent money management can get you from a 500 credit score to 700 within 6-18 months. It can take multiple years to go from a 500 credit score to an excellent score, but most loans become available before you reach a 700 credit score. A conventional mortgage requires a 620 credit score, so you may not need to get to a 700 credit score to get the financing you need. However, a higher score will increase your loan amount and make the interest more affordable.
What Are Some of The Ways to Rebuild Your Credit Score?
It’s possible to go from a 500 credit score to 700 in 6-18 months, but your results depend on how you approach your credit. Making late payments and doing the same things as before will not help you build a good credit score and can prolong the process. Credit building is a long-term commitment, but these strategies can help.
Pay Your Bills Timely
Paying your bills on time is the foundation for any credit score rebuild. Your payment history makes up 35% of your credit score and is the largest category. Making on-time payments strengthens your credit and prevents the debt snowball from making your finances more challenging. You should only spend as much as you can afford to repay at the end of the month. Overspending will put you in a more challenging position and make it difficult to achieve any credit growth.
Request a Credit Limit Increase
Your credit limit impacts your credit utilization ratio, and this ratio influences 30% of your credit score. Credit utilization measures your borrowed money against the available credit limit. If you borrow $1,000 against a $2,000 credit line, you have a 50% credit utilization ratio. That’s not a good ratio for your credit score and will result in more debt as interest accumulates.
Consumers should aim for a credit utilization ratio below 30%, but getting it under 10% is ideal for adding the most points to your credit score. You can improve your credit utilization ratio by paying debt or requesting a higher credit limit. In our previous example, borrowing $1,000 against a $2,000 credit line would hurt your credit. However, if your credit limit increases to $5,000, you will suddenly have a 20% credit utilization ratio. The lower credit utilization ratio will improve your score, but you should still prioritize repaying the balance.
Avoid Closing Old Accounts
If you get enough credit cards, you will eventually have a few credit cards you no longer need. This trend is especially common for consumers who use secured credit cards to build credit until they can take out an unsecured credit card.
While one less account to manage may sound simpler, closing an old account will hurt your credit score. That’s because credit history makes up 15% of your credit score. Older accounts strengthen this component of your score and help you gain points over time. If you do not use a credit card anymore, you can have it idly on standby as it contributes to your credit score. It would only make sense to close an account if it had an excessive annual fee, but closing accounts is not the best thing to do when trying to fix credit or apply for a loan in a few months.
Keep Credit Inquiries to a Minimum
Each time you apply for a loan or line of credit, you usually face a hard credit inquiry. Each of these hard credit checks will reduce your credit score by a few points. A single hard inquiry won’t make or break your credit score, but applying for too many loans and credit cards can meaningfully lower your credit score. Only apply for financing when you need it, and check the requirements before submitting an application. Some lenders do soft credit pulls for preapproval, so you don’t have to get hit with a hard credit inquiry only to get your application rejected.
Check and Dispute Errors in Your Credit Report
Lenders look at your credit report to assess how well you manage debt and if you can afford additional loan payments. Taking a look at this document lets you see what the financial institutions see, and some of these reports have incorrect or outdated information. You can double-check your credit report and dispute any errors that show up. Then, depending on the types of errors you find, you could immediately add a few points to your credit score.
Each of the three major credit bureaus — Experian, Equifax, and TransUnion — lets you obtain a free copy of your credit report every year. These credit bureaus charge if you want to view your credit report multiple times throughout the year. You rotate requests for your credit report to receive an updated copy every four months. If you detect errors and dispute them with one credit bureau, the other two will also update your credit report.
Credit reports can also tip you off on identity theft. If you see suspicious accounts on your credit report, someone could be using your personal information to get loans and lines of credit. So it’s good to peek at your credit report every once in a while to make sure everything looks okay.
Practice Good Financial Habits
The way you manage your finances impacts your credit score. Reviewing expenses and cutting the ones you don’t need makes it easier to pay for everything on time and build credit. If you have never tracked your expenses, doing so right now can probably save you a lot of money. You may discover unused subscriptions that continue adding to your debt. Setting budgets can reduce the fluff expenses and make you more intentional about how you utilize your money.
Monitor Your Credit
If you want to grow in any area, you should track it often. Monitoring your credit helps you see the day-to-day progress and spot opportunities to rebuild your credit. Staying focused on your credit will also inspire you to apply the strategies we have covered on this list. A credit rebuild takes multiple months, as the best-case scenario. Looking at your FICO score from your online bank’s dashboard can help.
Sign Up for a Credit Builder Loan
A credit builder loan is exactly what it sounds like. Consumers take out these loans when they have bad credit or no credit history. These loans are often small, rarely exceeding $1,000. Most of these loans have 6-24-month terms, depending on the lender. You won’t get access to the loan principal until you fully repay the loan, but some lenders let you access a portion of the funds when you get started.
Each monthly payment gets reported to the major credit bureaus. This payment history will demonstrate you can handle loan payments and will strengthen your credit report. As a result, you can opt for a longer loan to minimize your monthly payments and make the loan more affordable in the process.
Rebuild Your Credit Score: The Bottom Line
If you want to rebuild your credit score, you can’t do the same things that put you in your current position. However, changing your money habits, monitoring your credit report, and paying debt on time will help you achieve gradual progress. It can take over a year to go from a bad credit score to a good one, but it’s also possible to close the gap within a few months. Once your credit score improves, you will be able to qualify for better financing options and save more money in the long run.
The Credit Pros is a company in the U.S. that offers AI-assisted credit-related services, including easy-to-read credit reports, personalized score insights, and one-on-one free consultations with a certified Credit Specialist. Their services have received an A+ rating from the BBB and come with a 100% 90-day money-back guarantee, indicating a strong dedication to customer satisfaction and fast and effective results.
The Credit Pros offers three affordable monthly pricing tiers with no long-term contracts, ranging from $69 to $149 (with a first work fee), to suit various budgets. It could be a viable option if you need to rectify credit report errors, establish credit from scratch, or increase your credit score fast.
To learn more about The Credit Pros and their services, complete a brief form or call (727) 306-8201 to connect with a specialist without any charge or commitment.
