Dear Claire: How Long Does it Take to Improve My Credit Score?
Today on our Dear Clare series, I’ll be addressing how long it takes to repair your credit.
Obviously this is very difficult question and it depends a lot on who you are and what your problem is. I’m just going to put them into buckets so that you can just kind of get a general idea. The one bucket that is most common for most people is the “I just don’t have credit” bucket which is, “I didn’t get a credit card, I pay with mostly cash, I bought my car cash, I bought my bike cash”. This situation just takes time and it’s usually about three months.
Ideally what you’re going to want to do is actually go to an organization like Credit Karma, or freecreditreport.com and they can give you your credit report for free. Once you see your credit report, make sure you check it. You may have all kinds of weird stuff on there like a medical charge of somebody else who has your same name, or maybe it’s an old T-Mobile bill that you didn’t happen to pay but you’ll want to see what’s on there. See if you can get things (especially if they are incorrect) removed.
If there’s nothing on there you’re just going to need to build credit and what’s involved is just doing little things to build your credit. Simple things like having a utility in your name can help. If you’re renting a house put the electric bill in your name.
You also might consider a secured credit from a bank. With those you actually pay a bank a certain amount of money, say $250, and then they give you a credit card for $250. The $250 they keep and you cannot use it to pay off credit card. They just hold it in case you’re not good with credit. Then you just charge things up, maybe a couple coffees during the month, and then pay it off. You do that for a couple of months and your credit should go up pretty significantly.
The second bucket is the low credit score bucket is going to be very personal because it’s going to depend on what’s on your specific credit report. This gives you the bird’s-eye view of what’s involved in credit. So I’m no expert at this – here is my understanding is the credit history. Three main things are how long you’ve had any credit, what kind of mix of credit, and obviously that you’ve paid things on time. Now if you have some mix where you have only a year worth of a credit card history, went over the balance once, and made a late payment, then it’s really just time. You just got to keep paying those bills on time and your credit will slowly tick up. Generally you do not want to keep a balance on any credit card. Ideally, credit monitors want to see the balance below 25% of your limit and if they start worrying (meaning the big banks start worrying about your ability to repay) they’re going to start making it harder on you to get new credit. I have seen them lower a credit limit while you’re still trying to pay it off which can be super frustrating.
And then the third bucket (which is the most complicated of the buckets) is the one where you have something big that’s detrimental and we’ve all had that kind of stuff happen. A medical problem where you had a huge amount of bills, a bankruptcy, a foreclosure, or something like that. Most of the people in that bucket think they’re never going to be able to have good credit, and it’s never going to come back. This is not true and it’s going to happen a lot faster than you think. So in those particular cases, I would strongly advise you to reach out to actually a mortgage lender, or somebody that you really trust, because there are things that you can do to tick your credit up. Some of the things that you would think would be the most important, like for instance paying off an old bill, might actually lower your credit. So you want to make sure that you have the strategy right. In that situation, I typically always look to professional advice because the answers aren’t going to be as clear or as easy.
Then back to the actual question of our Dear Claire today, how long does this take? So if you’re in the no credit category, really 3 to 6 months to get you up into a credit, which is pretty great. Low credit can be pretty much instantaneous. If you have two credit cards and they’re close to the limit of the credit and you get them both paid down to 25%, your credit score, could go up 50 -75 points. So it’s pretty dramatic and it can be almost instantaneous. Within a week or two of you paying those down, your credit could be up. In the third category of more complicated things like bankruptcies and foreclosures, it really depends. If you have a bill in collections and you can dispute it, and that can help. Or you’ve got a foreclosure and there are special circumstances, try to dispute it. There are all kinds of things that can change that. So it is definitely worth exploring, if nothing else.
And as always in our Dear Claire series, I suspect that I might have made you ask even more questions than you had before. I’m here as a resource, so please reach out.
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Thanks so much for tuning in today, and I hope you have a fantastic day.