Having a low credit score can be a daunting prospect, but it doesn't have to be a life sentence. You can rebuild your credit and increase your score little by little. The best way to start is by getting rid of negative information in your credit report and catching up on overdue bills. It usually takes at least a year to recover from bad credit, but this timeline can vary depending on your starting point, the length of your credit history, and the steps you take in the future. To repair a bad credit rating, it's important to understand the basic factors that contribute to credit, such as whether you pay your bills on time and if you have credit card balances.
Identifying factors that are having a negative impact is also key. Checking your credit report for errors is an essential step in the process. Your credit score is a three-digit number, usually between 300 and 850, that is based on information in your credit report. It's valuable for lenders, who need to understand how likely you are to return the money you've borrowed. If you take these steps and continue to struggle, getting help may help you get back to normal.
An approved credit counseling agency can help you create a plan to better manage your finances and pay your debts. You can find a state-by-state list of approved credit counseling agencies in the U. S. Department of Justice to make sure you're working with a legitimate agency. If your score is low, you can quickly increase it again by paying for the cards more than once a month or challenging credit report errors.
Be wary of companies that promise quick solutions or ask you for a credit privacy number as a way to obtain new credit. Your credit reconstruction process may depend on the severity of the negative history that is reducing your rating. For example, recovering from a cancellation of payments, foreclosure, bankruptcy, or court judgment may be more difficult than recovering from a late payment. Over time, your credit rating can increase organically as you refrain from accumulating more debt and paying your bills on time. At the very least, making the minimum payment each month will help you improve your on-time payment history and reduce your debt-to-credit ratio. A good credit score gives you access to premium credit cards, better loan products, and more favorable interest rates.
When reviewing your credit reports, look for items in each of the five categories above that may be delaying your credit score. You can calculate how long it will take to recover your credit and how certain financial decisions could affect your score using WalletHub's free credit scoring simulator. The Fair Credit Reporting Act (FCRA) gives you the right to challenge any errors or suspicious information you discover in your credit report. Every time something changes in your credit report, that's when your credit score is usually recalculated, Grant says. Your score can begin to recover as soon as you start adding positive credit information to help counteract the negative aspects you have in your credit reports. Bad credit isn't a life sentence, which is good news for about one-third of people with credit scores lower than 620.
While a credit card can be a useful way to reverse a bad credit score, there are other methods you can try that can help increase your score. You can also use WalletHub's credit analysis tool for personalized advice on how to improve your credit. If your credit score isn't exactly where you'd like it to be, it's helpful to understand the type of time needed to improve your credit rating. However, the first step to quickly improving your credit is to apply for a credit card if you don't already have one. Credit-building loans may be worth considering if you don't have any installment accounts on your credit report. Depending on what's holding you down, you may be able to score up to 100 points through positive credit habits, such as paying on time or using less of available credit.
Paying credit card balances can be an effective way to improve your rating in the amount due category. Adding a mortgage to this combination could also improve your rating, but you shouldn't apply for a new home loan for the sole purpose of trying to improve your score. There is no standard time frame for how long it can take to repair past credit errors and increase your score to the “good” range (a FICO score of 670 or better). But with patience and dedication, it's possible to come back from bad credit and enjoy all the benefits that come with having good financial health.