What Can I Do To Help Fix My Credit?
The solution is not rocket science; the answer is simple but not always easy to accomplish. Remember, fixing your credit is a “team effort.”
First, always pay your bills on time! This makes up 35% of your FICO score. Lenders want to know if you make your payments on time before they give you that credit card or loan. A simple way to think of this is that your credit is like a building, and your payment history is the foundation. By making at least the minimum payments due every month on time, you're building a strong credit foundation upon which you can then expand your credit. Therefore,
no late payments—ever! If possible, make an additional payment midway through the month, as this shows more responsibility on your part and will help lower the outstanding balance sooner.
Second, avoid maxing out your credit cards. This accounts for 30% of your FICO score. Think of this as your credit utilization ratio. Add up all your credit limits and compare them to your total amount owed. Divide the total amount owed by the total credit limit—this is your credit utilization ratio. Aim to keep the amount owed under 30% of your limit.
Third, don’t close accounts you’ve kept in good standing but no longer use. By keeping good-standing accounts open, you're extending your credit history, which is very important to most lenders and credit scoring models. An open account with a lengthy credit history is what lenders look for, and it makes up 15% of your FICO score.
Fourth, try not to open too many accounts in a short period of time. When you apply for a credit card or loan, the lender will pull your credit file to evaluate your level of risk. This act of pulling your credit is called a “hard inquiry,” and it will lower your FICO score even if you're approved. Additionally, hard inquiries appear on your credit report, and accumulating numerous hard inquiries in a short period can negatively impact your credit scores, serving as a warning sign to potential lenders that you might be accumulating more debt than you can handle. In other words, it raises a significant “red flag” for lenders.
These are just a few key suggestions on how to build a strong credit foundation. When your credit score does take a hit, you can prevent it from declining too much and help it recover more quickly. Remember, “America may run on Dunkin’, but financially, Americans run on credit.”
How Long Does It Take To Raise My Credit Score?
How quickly you can raise your credit score depends on the reasons behind your current score. If your score is low simply because you don’t have much credit history (perhaps you've never used credit), you can raise your score within months.
If you have significant debt, you can improve your score faster by paying down that debt. However, if your creditworthiness has been damaged by missed payments, charge-offs, or bankruptcy, it will take longer to raise your score. Completely recovering to a very high score can take time. It’s a process. Your credit didn’t get messed up overnight, and it can’t be fixed overnight either. That’s just a fact.
It AIways Depends On The Reason
Your credit score is formulated using a blend of five factors in the following order of importance: Payment History (35%), Amount of Debt (30%), Length of Credit History (15%), New Credit (10%), and Credit Mix (10%). Changes in each of these factors can raise or lower your score. For example, if you have a low score because you've never had credit before, your score will increase each month as you make credit card charges and pay your bills on time.
As you add cards and don’t use them, or only put small charges on them, the amount of debt you have compared to your available credit shrinks, raising your score. Paying down balances also improves your debt-to-credit ratio and raises your score. Adding an installment loan, which is a loan that requires regular monthly payments—such as an auto loan—changes your credit mix and can also raise your score.
If your credit score is low due to missed credit card or loan payments, bankruptcy, defaulting on a loan, having a loan turned over to a collection agency, garnished wages, negotiating your debt down, or using a loan consolidation service that negotiated debt reductions with your lenders, it can take years to rebuild your credit. Even in this latter situation, you can start raising your score if you can obtain credit and make timely payments.
Some Issues Effecting The Timing
Your score can change each time one of your lenders reports information about you to the credit bureaus. This can include your credit card companies reporting that you made your monthly payment on time. Auto and home equity loan lenders, as well as your mortgage lender, also report your monthly payments. These reports can raise your score each month. However, if you've missed payments, had a charge-off, or faced other financial problems, it can take years to recover to your previous top score or score range. Certain derogatory items can stay on your credit report for up to seven years.
According to Vantage Score 3.0 Solutions, the impact of a derogatory item on your credit score decreases over time. For example, a missed mortgage payment can lower your credit score by 40 to 60 points, depending on your score at the time of the misstep, but your score can recover within 1 to 2 years if you manage your credit wisely during that period.
