If you are struggling with a low credit score, the first thing you may think about is how much time it will take to improve your credit score. Working towards rebuilding your credit score is a useful financial goal. But what should you do to improve your score, and how long do you have to wait to see the change?
Having a good credit score helps you prove your creditworthiness to potential lenders. If you are about to buy a home or a car, or you are looking forward to applying for a new credit card to manage your regular expenses, and then ensure you have a good credit score. You need to improve your credit score before applying for any credit product, as that lowers the probability of rejection of your application.
How much Time does it Take to Improve a Credit Score?
Improving your credit score isn’t possible overnight. There is no definite answer to the question, “How long will it take to improve a credit score?”. This question, unfortunately, has no definitive answer. The time it takes to improve a credit score varies depending on the person and their repayment history. It could take a few months for some, while it could take many years for others.
It goes without saying that the lower your score, the longer it will take you to improve it. To have a high chance of getting approved for loans and avoiding rejection, a credit score of 750 is considered the minimal requirement.
Generally, it takes around 4-12 months to reach the point where you can apply for a loan. It will take a few months to get to 750 if your score is currently somewhere between 650 and 700. However, if you have a credit score of less than 650, it will take more time to improve the score.
Not only that, how long will it take to improve your credit score also depends on how frequently your lenders or credit card company reports your data to the credit bureaus. Even if you pay off your credit card on time and in full, if your credit card company doesn't record your payments until the end of the month, you won't notice the impact of your credit card payments on your credit score until then.
Many credit repair companies make promises of near-instant results, claiming that they will handle all of the legwork to increase your credit score. Remember, that there is no magic formula for improving your credit score overnight.
Within one to two months, you can improve your credit score. Depending on what's lowering your score and also how you handle it.
Here are a few tips on how to improve your credit score the right way, so you'll never have to wonder, "How long does it take for a credit score to improve?" again.
1. Set up Direct Payments
Late or missed credit payments can drop your credit score and linger on your credit report for a long time. To ensure that you don't miss a payment, consider setting up automatic payments for your bills. Unpaid and neglected debt will have a negative impact on your credit score.
2. Limit your Loan/Credit Card Applications
Making a lot of applications for loans or credit cards in a short span of time can give the impression that you're desperate or heavily dependent on credit. So, be wise and spread them out. Lenders conduct a 'hard credit check' when you apply for loans or credit cards, which leaves a record on your credit report. A reasonable rule of thumb is to apply for a loan no more than once every three months.
3. Monitor your Credit Report Periodically
Even minute errors, such as a misspelt address, can have a negative impact on your credit score and cause a lender to reject your application. Double-check your credit report to ensure that all of the information on it is correct and up to date. If any of the information is erroneous, file a dispute form with one of the credit bureaus to have it fixed.
4. Opt for a Soft Credit Check
Lenders and financial institutions will conduct a 'hard credit check when you apply for credit to assess your eligibility. This will leave a 'footprint' on your credit report and will lower your credit score too. It's worth requesting to run a 'soft credit check’ when you want to access your credit report for periodic review. A soft credit check doesn’t impact your credit score.
5. Keep a Low Credit Usage
While assessing the risk of lending any credit to you, lenders and credit card companies will consider not only your outstanding obligations, but also the amount of credit you are using outside of the limit assigned to you. If you have a high credit utilisation ratio, potential lenders may interpret this as an indication that you aren't managing your finances well. Hence, try keeping the credit utilisation ratio to 30% or less than that. If you need to go higher than that benchmark, ask your credit card company to increase the assigned credit limit. It reduces the percentage of your available credit that you have in debt, which is a key element in your credit score. However, be careful not to use up the additional credit to such an extent that you fail to manage the repayments.
Focus on building your profile rather than being worried about the time it will take to improve your credit score. If you stay on the right track, your credit score will improve over time and maintaining that will be beneficial for you in the long run.