How Long Does It Take To Repair Credit?
How Long Does It Take To Repair Credit?
More and more people today see their credit destroyed because the recession has dealt them a job loss, bankruptcy, foreclosure, identity theft, or a slew of late payments and collection accounts. In the face of these major drops in their credit scores, all they want to know is how long it will take to recover and have good credit again. As is often the case in financial matters, it depends. Actually, it is rather fishy for anyone to promise a specific result within a specific time frame. Think of it this way: would you trust a lawyer that guarantees to win your case?
Related post: What’s A Good Credit Score?
Let’s get one thing out of the way right now: there is no way to legally, legitimately get your credit wiped clean without bankruptcy. Setting up a new Social Security number or applying for a new employer ID number (EIN) to use for getting credit is illegal. Stay away from that. But there are legitimate ways to fix your credit, and we will cover them in this article.
How are your credit scores calculated?
Yes, you have several credit scores, three to be exact, since there are three major credit reporting agencies: Experian, Equifax, and TransUnion. They each collect information independently about your credit and companies are not required to report to all three, so you should check with each one to see the score they give you. Each agency basically uses the same formula though to calculate your score, although since they’re each working with different information, your score will vary. Your payment history of timely or untimely bills counts for 35% of your score. The next 30% is based on your debt-to-available credit ratio. Then the length of your credit history accounts for 15%. Finally you have your types of credit and new credit applications each making up 10% of your score.
The first step is to have a copy of your credit report in hand, which you can obtain for free from each of the three national credit bureaus. You are entitled to one free report per bureau per year, and you can expect to receive copies within 2-3 weeks. Each bureau’s file could contain very different information, and you need to know exactly what questionable items you’re dealing with.
Basic things you need to know
- Although your credit report lists the past 7 years, recent credit history is weighted more heavily. Your most recent history is what impacts your score the most and the older the event, the less impact it has on your score.
- Many credit reports have mistakes, which makes your score inaccurate. You should get your credit report and review it to make sure yours is accurate. You have the right to dispute incorrect information on your credit report.
- Try and avoid late payments: late payments ruin your score faster than on-time payments restore it.
Credit repair techniques and time frames
- Correcting mistakes on your credit report. The quickest changes to your credit score are made by correcting any legitimate errors. If wrong charges or wrong information are pulling down your credit score, you must fix these errors right away. Under the Fair Credit Reporting Act, the consumer reporting company (the credit bureau) and the information provider (the creditor or company that reported the item) have to correct any inaccurate or incomplete information on your credit report. Consumer reporting companies are legally obligated to investigate and verify the questioned items within 30 days of your written request. You’ll also need to inform the creditor or other information provider of the items you’re disputing and, if the information is inaccurate, they may not report it again. You can see an improvement to your score within 30 days after you report or dispute false information. Some unscrupulous credit repair companies will suggest you dispute everything. Don’t do that. Time frame: 30 days
- Paying down your debt. If you have credit cards with balances, stop using them, stop carrying them, and start paying them off. Take the card with the lowest balance and pay more than the minimum, as much more as you can. When it’s gone, do the same with another card, preferably the one with the highest interest rate. Your credit utilization (the amount of credit used versus credit available) will drop. This will decrease your debt ratio, providing you with more available credit. Remember, this section of your credit counts for 30% of your score. Estimates are that you can see your score rise by 20-30 points over a 60-day period by seriously paying down your credit card debts. Time frame: 60 days
- Making payments on time. Keeping your payments current is the largest factor in your credit, but it does take some time to establish a history of timely bill payments. The agencies only get an update to your account once a month from each of your lenders, so each month makes a difference. You should know that a two-month past due bill on your record is much worse than a one-month past due bill. This is because some of the agencies will report the one month late charges, but they all definitely record the two month overdue bills. To truly boost your score in this area, make sure you are paying all your bills on time, even before the grace period ends. You will need to do this consistently for six to 12 months in order to see real improvement to your score. Time frame: 6 to 12 months
- Becoming an authorized user. If you have family or friends with good credit, ask to be added as an authorized user on a credit account or two. You don’t actually get or use the credit card (you don’t even need to know the account number) but the history on that account will show up on your credit and become part of your credit score. Time frame: 6 to 12 months
- Getting a secured credit card. This is a card designed to help you repair your credit. The fee may be steep, and you’ll have to deposit cash with the creditor in an amount up to the card’s limit. Make sure that the creditor guarantees to report your payment history to credit bureaus — and pay on time religiously. Time frame: 6 to 12 months
- Negotiating your debt. You also might be able to negotiate with the creditor to have negative items removed in exchange for debt settlement; however, you’ll be dealing with professionals who can quickly gain the upper hand if they sense a lack of confidence or any indication that you’re desperate to settle. Time frame: variable.
As you can see, it’s possible to notice improvement in your score within a few months. But depending on your financial picture, a lender may want to see that you maintain that kind of good performance for a longer time period than a few months. For instance, if you have something like bankruptcy or foreclosure on your credit report, you will have to wait a little longer. For bankruptcy, most conservative lenders will want to see one or two years of clean credit afterward so they can see how your history shapes up. Remember too that a bankruptcy stays on your credit report for ten years, not seven like other debt. In the case of foreclosure, the time period is a little less, unless you want to buy another house. Bad credit mortgage lenders will wait for three or four years, which will depend on the latest FHA federal home lending guidelines.
How long will it take to get a clean credit record?
Your score simply cannot be improved in less than 30 days. If you work the system it takes at least 35 days to see any improvement. Over a period of six months, your score can be drastically improved if there are erroneous reports on your file.
Check your credit a couple of times a year to make sure that your good behavior is being reported accurately. Most of the negatives on your credit report will drop off after seven years, but you don’t have to wait that long to see an improvement in your score. If you have a clean record of payments on time for three years and you don’t apply for more than one or two new cards at that time your score should go above 650. If you want to get that score above 700, you’ll need to get your debt levels closer to 10 to 20 percent. Even if you do everything right, you probably won’t reach 700 for at least a couple years.