How long does it take to build credit? Well…a while! That’s why it’s important to start young. But, it’s also important to have a plan, and not use the credit irresponsibly (which can be hard to do when you are young).
You really do need to take your credit score very seriously, because it’s the key to so many financial aspects of your life. It will determine if you can buy a house, buy a car, start a business and myriad other things. It will also determine what interest rate you will pay on the loans for said items!
Unfortunately, by the time many people realize this, they have already done some things to set their credit score back. Even waaaay back.
That said, if you find yourself in this situation, it’s possible to rebuild your credit a bit more quickly with a few techniques.
How Long Does it Take to Rebuild Credit?
Now you may be wondering how long it will take to build your credit back up. Sadly again, the answer is that it could take a (long) while. How many years depends on what your current credit score is, and what steps you are taking to rebuild it.
For example, someone with a 550 credit score is in the “poor credit” range. But, if their goal is to get a low-downpayment FHA loan for a house, they only need to get it to 580. It may not take that long to lift a credit score by 30 points.
However, other credit scores may be lower due to things like previous bankruptcy. In that case, such a person may have to wait a full 7 years before that bankruptcy falls off of their credit report.
Wherever you fall in terms of “bad credit,” you need to realize that rebuilding that credit may likely to take years…sorry. It’s a marathon and not a sprint. But I’ve got some recommendations below for rebuilding your credit as quickly as possible.
What Do I Need to Do to Build or Improve My Credit?
Monitor Your Credit
Wanting to get a credit boost? Our first recommendation is the simplest. However, it’s also the most important thing you can do!
You need to sign up for a credit monitoring service. Many of these services are completely free and help you review your credit from month to month. I personally use Credit Karma*.
On the most basic level, these services can let you know what your credit “score” is. This lets you know how bad things really are and how far you must go to meet your goals.
Additionally, these services will make recommendations for ways to increase your credit score. That information, on top of our guide, can help you formulate a “game plan” for your credit score.
Finally, you can use credit monitoring to discover potential errors on your credit file. By reporting these errors to the relevant credit agencies, you can instantly boost your credit score.
The Authorized User Technique
Another lesser-known credit trick is becoming an authorized user. Basically, you ask someone (like parents or other family members) if you can become an authorized user on one of their credit cards.
Once you are authorized, your own credit score will benefit from their credit history (on that card). If you use the right card (like Citibank for example), they will report the main users limit and credit history of that card to your report.
In addition to repairing bad credit, this is a great way for younger people to jumpstart their credit history. Plus, the card owner can just keep your card in their drawer, so you don’t “accidentally” spend any money on it.
Pay the Right Debts Down
Generally speaking, you can improve your credit by paying your debts down. If you want to rebuild your credit that much quicker, though, you need to pay the right debts down first.
For example, a full 30% of your credit score comes from credit utilization. In this case, “utilization” looks at how much you are using individual cards and your overall available credit.
To have good credit utilization, you should use no more than 30% of the available credit for each card. To achieve this, you can selectively pay down your debts and also accept credit increases when they are available.
Long story short? It may be tempting to try to entirely pay down certain cards. However, your credit may get a bigger boost, and sooner, from moving to a new card as soon as one of them hits the target utilization.
Get More Credit!
Sounds a but counterintuitive, but as I just mentioned, one of the biggest factors of your credit score is the percentage of used credit vs available credit. The lower the percentage the better.
So if you can increase the amount of credit you have (and not utilize it), then your percentage of used credit will improve.
Credit karma* will happily recommend credit cards to you (because they get a commission…duh), and they will filter them by certain criteria. One of those criteria is “most likely to get approved with poor credit”!
Use a Secured Credit Card
A secured credit can help someone repair their credit score no matter how low it is. So if it’s really bad, this is the best way to go.
Most credit cards are “unsecured.” That means you don’t have to put down any kind of collateral before using the card, and you can spend any amount up to the limit on the card.
With a secured card, you must first make a deposit (typically of at least $100). And in most cases, the amount that you deposit is your credit limit for the card.
It’s easy to get approved for a secured card because the other party has nothing to lose. If you should fail to make payments, they can always take what they are owed from your initial deposit.
Meanwhile, you get all the credit benefits of a regular credit card from a secured card. By regularly using it and then paying off your monthly debt, you can build your credit back up.
Pay Bills on Time
Our last piece of advice is a lot like our first piece. That means it is simultaneously very simple and very, very important!
You need to pay your bills on time each month. Even if you never outright miss a payment, a history of late payments will reflect negatively on your overall credit score. And a late payment will stay on your record for two years!
Conversely, if your score is low because you regularly miss payments, you can really boost it by making payments on time. One of the best ways to do this is to enroll in an “auto-pay” feature that automatically takes your payment on the due date.
Speaking of dates, you may be able to contact the lender and change the regular due date to a different point in the month. When all your payments are due around the same time, it becomes harder to miss a payment!
The Credit You Deserve: What Comes Next?
Now you have an answer to the question, “How long does it take to build credit back?” But, do you know who can provide ongoing financial advice?
When it comes to finance, business, real estate, and more, my mini-courses have all the info you need. To take better control of your finances, all you have to do is subscribe!
Lastly…don’t forget that if you own a business, you should get a business credit card that is not connected to your personal credit! This way you can run up a balance if need be and it won’t bring down your personal score.