If you have been struggling to pay your bills on time or have had problems with debt in the past, there’s a big chance that your credit score may be affected.
But it’s not the end of the world. There are steps to repair your credit score and improve your financial situation. In this article, we will outline six of the best tips for repairing your credit score. Follow these tips and you will be on your way to improving your finances and having better bank accounts.
Why is having a good credit score important?
Having a good credit score is important for several reasons. A good credit score can make it easier to access loans and secure better terms on them, such as lower interest rates. It can also be beneficial when applying for rental applications or trying to get other forms of financing, such as a car loan.
Additionally, having a good credit score may make it easier to open utility accounts or rent services like cell phone plans.
Ultimately, having a good credit score makes life much easier and gives you greater financial security. As such, it’s important to take steps to build and maintain your credit rating so that you can have the best access to available financial opportunities.
What Goes into Creating a Bad Credit Score?
A bad credit score can be caused by several factors. The most common causes are making late payments or missed payments. Having too much debt compared to the amount of available credit (also known as “credit utilization”), and having a history of defaults or bankruptcies.
Late payments indicate that you may not be able to keep up with your debts and bills, which could lead lenders to view you as a higher risk when considering loan or credit requests.
Carrying too much debt compared to your available credit is also risky for lenders. It can indicate that you might struggle in the future if your financial situation suddenly changes. Losing your job or having a medical emergency for example. It’s important to pay off some of your debt and keep credit utilization low to maintain good credit scores.
A history of defaults or bankruptcies will significantly damage your credit score. Defaults happen when you fail to make payments on loans, while bankruptcy is when you can no longer afford to repay your debts and must seek legal protection from creditors.
Both events will be recorded as serious marks against your credit report, hurting your chances of qualifying for new financing in the future. Avoiding these scenarios is essential if you want to stay on top of your finances and maintain a good credit score.
How Long Does it Take to Repair Your Credit Score?
The credit repair process can be lengthy. It can take up to 3 months (maxed credit cards) and up to over 6 years (bankruptcy.) But exactly how long does it take to repair your credit score? the answer ultimately depends on the severity of the damage, as well as how diligently you work to rebuild your credit.
According to CNBC and FICO, the average credit score recovery time per event is the following:
- Maxed Out Credit Card – 3 months
- New Credit Card Application – 3 months
- Closed Credit Card Account – 3 months
- Late Mortgage Payments – 9 months
- Missed Payments – 18 months
- Bankruptcy – 6+ years
How Long Does Bad Credit History Stay in Your Report?
The credit bureau is the one that determines your credit score. There are three credit bureaus in the US, Equifax, Experian, and TransUnion. But ultimately, it is up to your lenders to contact them to report information about you.
Basic things such as your credit card company relaying that you decreased your credit card balances or the bank reporting that your mortgage payments are up to date. These are all positive influences on your score.
The Best Ways to Improve Your Credit Score
Here are tried and tested tips to improve your credit score:
Maintain Your Credit Utilization Ratio Under 30%
The credit utilization ratio is calculated by comparing credit card balances to the total credit card limit. This ratio is used by lenders to assess how well you manage your finances. A ratio of less than 30% and greater than 0% is generally regarded as favorable.
Pay Your Bills On Time
Payment history accounts for 35% of your credit score. If you want to improve your credit, you should definitely prioritize your monthly payments. And if you’re finding it difficult to pay your bills on time, using Autopay is the clearest solution.
Settle Your Outstanding Debts
Paying off your unpaid debts will improve your payment history and lower your credit utilization ratio.
Consider using the debt avalanche or snowball method to repay your credit card debt. debt avalanche method prioritizes paying off high-interest credit cards first, whereas the snowball method prioritizes paying off the smallest balances first.
Keep All Your Credit Cards Open
When you’ve paid off your old credit cards, you might be tempted to close them. But don’t be so quick to do so. You can build a long credit history by keeping them open, which accounts for 15% of your credit score.
However, there are things that you might have to consider when doing this. Some card issuers may close your account due to inactivity. Cards that have an annual fee may well be worth closing.
Regularly Check Your Credit Score and Report
Credit reports include information about how you used credit over the last ten years. You can get a free credit report from Experian. Almost all creditors report to all three credit bureaus, so it’s crucial to check on all of them.
Credit reports are also used to calculate your credit score, so review them as well. Credit scoring websites and some credit card issuers offer free credit score checks. Checking your credit score requires only a soft credit inquiry, which has no negative impact on your score.
Dispute Errors on Your Credit Report
Delete any inaccurate or negative information from your credit reports. Credit reporting agencies occasionally make mistakes. Knowing your credit report and credit score is the first step, but looking for errors is the next critical step. If you find any, disputing those errors and having them removed is a relatively simple process.
Conclusion
Throughout this article, we’ve talked about the importance of having a good credit score and how to avoid and repair bad credit. How long does it take to repair your credit score is ultimately the question people with a bad to fair credit score want answered. And we’ve answered that question – it’s a long game. You need to stay focused, disciplined, and proactive. It’s not easy. But it’s the only way to financial recovery.
