How Long Does It Take to Rebuild Credit? Stop Paying 200% More in Interest
We’ve all heard the horror stories.
Bad loans that cause people to go bankrupt. Bankruptcies that haunt people for decades. Being unable to buy a car or house because of a bad credit history. Having to pay 200% more in interest because you only have a “fair” credit score instead of a “very good” one.
Sometimes life is out of our control, and our credit takes a hit because of it, but that doesn’t mean it should haunt you forever.
That’s why today we’ll be answering the age-old question “how long does it take to rebuild credit”.
You’ll learn everything from how long it takes to grow your credit in the first place, to how long it takes to rebuild it after a misstep, and we’ll even throw in the 5 best ways to rebuild your credit score.
We’ll cover:
How long does it take to grow credit?
How long does it take to rebuild credit?
5 ways to grow your credit score
The fast track to grow your credit
It’s time to start improving.
How long does it take to grow credit?
Source - image in public domain
To answer this you first need to understand the difference between a credit score and a credit history.
Ask yourself a few questions:
Have I ever owned a credit card?
What does my repayment history look like?
Have I taken out a student loan?
Have I been an approved user of someone else’s credit card?
Am I on the electoral register?
What is my marital status?
Do I own or rent my accommodation?
Has my credit score been checked by others many times before?
Are there any relevant events on my public record (eg, bankruptcy)?
There are most of the items that contribute towards your credit score. However, not all of these are weighed equally by credit agencies, and answering a few of them positively isn’t the same as having a good credit score.
For example, having a student loan or being an approved user of someone else’s credit card (eg, your parents) will mean that you have a credit history and credit report. This does not mean that you automatically have a credit score.
Think of credit reports as the first step to getting a credit score - a footprint in your journey. Once the reports have been submitted to credit bureaus such as TransUnion, Experian, and Equifax, your credit score is generated.
Once you have it, how long does it take to grow credit?
Sadly, it’s not as easy as a bullet point list.
The amount of time this can take varies depending on the methods you use. For example, if you pay off a monthly credit card consistently, your credit score will increase slightly every month.
On the other hand, if you pay off a large credit card balance or manage to get your card limit increased, your score can immediately increase.
This is because a large part of your credit score (roughly 30%) comes down to your credit utilization - that is, how much of your allotted credit you’re using. If you only use half of the credit you’re allowed to ($1,000 of a $2,000 limit), that will reflect positively on you.
That’s why it can pay off massively if you can increase your credit limit. Every extra dollar to your limit is a dollar which you’re not currently using, and thus you have a lower credit utilization score.
Negative elements can affect your score just as quickly. If you go over your credit limit for example, this will immediately create a flag that will tank your credit score. That’s why it’s just as important to think about how long it will take to recover from things that bring down your credit score.
How long does it take to rebuild credit?
So you’ve messed up. You didn’t check your credit card balance before the end of the month and now your credit score has tanked.
You’re human, it happens to the best of us.
How long does it take to rebuild credit? Or, rather, how long is it before these negatives are removed from your credit history?
This time I can give you a set answer:
Up to 2 years: Hard credit inquiries
Up to 7 years: Foreclosures, late payments, charge-offs, bills to collection agencies, settled accounts, and Chapter 13 bankruptcy filings
Up to 10 years: Chapter 7 bankruptcy filings
The exact amount of time will depend on how severe each of the elements are, and how many negative strikes you have on your account.
For example, if you have a single late payment on an otherwise spotless record, that payment will probably take less than 7 years to be removed from your credit history. This means that your credit score will recover far more quickly.
This is especially true because you don’t have any other strikes on your record. This will show that you’re otherwise pretty trustworthy with credit, thus the degree to which it brings down your credit score will probably decrease rapidly.
If you’ve just filed for Chapter 7 bankruptcy, have late payments in the triple digits, and multiple bills have been sent to collection agencies, you’ll probably have to wait the full amount of time for each of those items to be wiped. In other words, it’ll be 10 years before these items stop bringing your credit score down.
Worse still, the degree to which each items brings down your score will decay much slower than if any of these elements were on their own.
Let’s say that you had only filed for Chapter 7 bankruptcy. This would be wiped from your record after 10 years but, because you don’t have any previous strikes, your credit score might start to slowly recover after 5 years.
Due to the sheer number of strikes on your account, however, the bankruptcy’s effects on your credit may only start decaying after 8 years instead.
Basically, the more strikes you get, the longer each of them will haunt your credit score.
You also need to consider what “rebuild” means in your case.
If your credit score was “fair” (typically from 580-669) before it took a hit, it will recover back to its original score much faster than an “excellent” (800+) score attempting to do the same.
5 ways to rebuild your credit score
Source by Nick Youngson / Alpha Stock Images. Image used under license CC BY-SA 3.0
Now that we’ve covered how long it takes to grow credit and how long it takes to recover from negative strikes, let’s get into the fun stuff.
How to rebuild your credit!
First you need to know what elements make up your credit score. We’ve already covered this topic in our What Credit Score Do You Start With? post, but to summarise:
Payment history (~35%)
Credit utilization (~30%)
Length of credit history (~15%)
Credit mix (~10%)
New credit (~10%)
Knowing this is a great way to know what will have the biggest effect, and thus what will be faster in rebuilding your credit score, i.e., lowering your credit utilization will rebuild credit faster than simply not taking out new credit cards (“new credit”).
Following on from that, let’s get into the best ways to rebuild credit.
1. Decrease credit utilization
One of the easiest ways to rebuild your credit score is to decrease your credit utilization. This accounts for roughly 30% of your credit score, and can be done much faster than building a good payment history.
The best way to do this is to either pay off outstanding balances or to increase your credit limit. Either way will work, but obviously if you don’t have much in the way of outstanding credit, you’ll need to look into getting a credit card with a higher limit than the one you currently have.
2. Make your payments on time
This biggest single factor in calculating your credit score is your payment history.
While it can be faster to increase your credit limit or pay off your outstanding balances, consistently making payments on any loans (including car loans, bills and mortgage payments) is an easy way to score extra credit points.
I’ll go into more details on the best way to do this in the next section of this post (hint: it involves Grow Credit!), but for now let’s move on to...
3. Build out your credit history
Building your credit history is a fantastic way to rebuild credit for one simple reason.
If you’re making your payments on time (see no. 2 in this list), you’re already doing it!
Let’s say you haven’t taken out any loans and don’t want to. That’s absolutely fine. I haven’t taken out any loans and don’t have a mortgage (the housing market and deposit expectations are crazy right now), and hate the idea of bills hanging over my head every month.
You can still build your credit history simply by putting your regular bills on your credit card before paying them off.
Whether you like relaxing with Netflix, Disney+, or you’re catching up on your anime fix with Crunchyroll, all of your subscription services can help to rebuild your credit score. Again, check out the next section of this post to find out the easiest way to do with without saddling yourself with a monthly loan payout.
4. Diversify your credit
Source. Image used under Pixabay license.
As we’ve demonstrated in the past, there are several different kinds of credit. The more kinds you have in your credit history, the better your credit score is.
Essentially, the more experience you have with different kinds of credit, the more favorable you’ll be to lenders.
The main categories are revolving credit, mortgages, auto loans, and student loans.
Student loans and mortgages are (for most) once-in-a-lifetime options. If you’re in a solid position to take one you’ll probably be getting it whether or not it had any effect on your credit score.
However, revolving credit and auto loans are more flexible.
This is why getting a credit card is such a massive step towards creating a solid credit score. Not only does it allow you to build a solid payment history, make your payments on time, and give you a credit utilization score, but it also diversifies your credit profile.
Auto loans are a middle ground - if you need a vehicle, it can sometimes be worth taking an auto loan even if you have the money to buy it outright. You’ll have to pay much less up front, and it’s another type of credit under your belt.
However, always remember to weigh the monthly (and total) payments against the value of the vehicle and your current financial situation.
5. Don’t take out loans or credit cards you don’t need
In some respects this is the simplest way to rebuild your credit, as it doesn’t actually take any effort or action on your part.
Remember that “hard” credit checks to do things like taking out loans and credit cards will leave a mark on your credit history. As such, unless you really need to, it’s best to avoid taking out any new loans or credit cards.
The quickest (and most consistent) way to grow your credit
A massive part of your credit score comes down to decreasing your credit utilization, making payments on time, building out your payment history, and diversifying your credit. Around 90% of it in fact.
That’s 90% of your credit that you could rebuild by using Grow Credit!
Grow Credit lets you put your monthly subscriptions (and only your monthly subscriptions) on a dedicated card to build a consistent credit history. In other words, you can rebuild your credit by simply paying off the subscriptions you already have.
GrowCredit reports your account balance and repayment history to the credit bureaus at the end of each month, so it’s also one of the fastest ways to increase your credit score!
In total it can take 60-90 days for your information to show up on your credit report. In other words, you could see a massive difference from as little as two months of just living your regular life.
Get started with Grow Credit for free today, and start rebuilding your credit without lifting a finger. Check out how it works here.