October 28, 2021 – By Kat Tretina
There’s one little, three-digit number that has a big impact on whether you can buy a new car, house, or even a new cellphone: your credit score. Your credit score can even affect how much you pay, since lenders use your credit score to determine your interest rate as well as your eligibility for credit.
When you’re working on improving your credit, it might feel like it takes forever for credit scores to rise. Several factors impact how fast your credit score will grow to the “good” or “excellent” ranges, but you should expect slow and steady improvements rather than overnight miracles.
If you have poor credit or no credit at all, you’re not alone. The Consumer Financial Protection Bureau (CFPB) reported that 26 million American adults — about 11% of the population — are credit invisible, meaning they don’t have any credit history with the major credit bureaus. An additional 19 million adults were “unscorable,” because they didn’t have enough credit history to earn a score, according to Prosperity Now. Finally, about 16% of American adults have scores in the “poor” range, meaning a FICO score between 300 and 579, according to the CFPB. The credit system in the U.S. disproportionately disadvantages marginalized communities, including people of color, those from low-income households, and immigrants.
Low credit or no credit can make it difficult to qualify for new lines of credit or even to get approved for an apartment on your own. But there are steps you can take to improve your credit, whether you’re starting from scratch or overcoming past mistakes.
Here’s what to know about the best ways to improve credit quickly — and how long it might take for them to work.
How Your Credit Score is Calculated
There are multiple scoring models, and they all use data from your credit report to determine your score. The data is broken down into five categories. For FICO scores — the most commonly used scoring model — some categories have a bigger impact on your credit score than others:
- Payment history: Your payment history is the most influential factor and affects 35% of your score. It shows creditors whether you’ve paid past credit accounts on time or have a history of late or missed payments.
- Credit utilization: Credit utilization makes up 30% of your score. It reflects the amount of available credit you use, and is calculated by dividing your total debts by your total available credit.
- Length of credit history: Lenders want to see that you have successfully handled credit for several years, so the length of your credit history determines 15% of your score.
- Credit mix: Your credit mix — or the assortment of credit available to you — affects 10% of your score. Lenders like to see that applicants can handle multiple types of credit, such as credit cards, mortgage loans, and personal loans.
- New credit: When you apply for several new credit accounts within a short time, lenders worry you’ll be overextended. Your new credit impacts 10% of your score.
How Long Do Derogatory Marks Stay on Your Credit Report?
No one’s perfect, and that’s very clear when you’re dealing with credit scores and credit reports. Your credit report is a history of how you’ve handled credit in the past. If you’ve made mistakes, such as late or missed payments, those will stay on your credit report for a long time. But just how long depends on the type of derogatory mark:
- Late payments: Because lenders usually report to the bureaus every 30 to 45 days (roughly), you may have a small window of time after missing a payment to make it up before it appears on your report. But once a late payment is on your report, it will stay for seven years from the original delinquency date.
- Collection accounts: If you have an account that is sent to collections, the account will remain on your credit report until seven years after your initial missed payment that led to the account ending up in collections.
- Bankruptcies: Depending on the type of bankruptcy you declared, it will remain on your credit report for seven to 10 years.
- Other negatives: Other derogatory marks, such as repossession, will typically stay on your credit report for seven years from the date of the first payment you missed.
How Long Does It Take Credit Score to Rise
How quickly your credit score rises is dependent on your starting point, including what debt you currently have, what credit is available to you, and whether you have a history of missed payments or bankruptcies.
If you have little to no credit history, ask a parent or relative that has good credit to add you as an authorized user to their credit card. Their payment history and available credit will show up on your credit report, helping you establish your credit.
Lenders report information to the credit bureaus regularly, but some lenders only report every 45 days, according to credit bureau TransUnion. If you pay down debt, get a fraudulent account removed from your credit report, or boost your credit limit, it may be some time before you see those changes reflected on your credit report.
While instant results aren’t likely, it is possible to move your credit score into a new range in less than 12 months. “If someone is making consistent payments, isn’t applying for new forms of credit and not charging anything else, they should be able to go from ‘poor’ to ‘fair’ credit within a year,” says Madison Block, senior marketing communications associate with American Consumer Credit Counseling, a national non-profit credit counseling agency .
Fastest Ways to Improve Your Credit Score
Improving credit isn’t an exact science, so no one can tell you exactly when or by how much your score will increase. But if you use these tips, you can make progress and stay motivated along the way.
1. Review Your Credit Report
One of the most effective ways to improve your credit is to review your credit report and dispute inaccurate information. Credit report mistakes are common, and you could have accounts on your credit report that don’t belong to you. If there are errors with derogatory marks, such as missed payments, and you successfully dispute them, you could improve your score in a relatively short time.
Typically, you can view your credit reports for free once per year at AnnualCreditReport.com the only federally-authorized site for free credit reports. However, the bureaus have made credit reports available on a weekly basis through April 2022 due to the COVID-19 pandemic.
2. Set Up Automatic Payments
Making all of your payments on time is crucial. “If you miss payments, that’s going to damage your credit score severely and very quickly and it’s going to take some time to recover,” says Rod Griffin, senior director of consumer education and awareness with Experian. “Late payments remain on the credit report for seven years from the date of the missed payment and can drag down scores for that entire time,” he explains.
To reduce the risk of forgetting a payment until after it’s due, set up automatic payments linked to your bank account. As an added bonus, some student loan and personal loan lenders offer rate discounts if you enroll with AutoPay, lowering your interest rate.
3. Pay Down Existing Debt
If you’re looking for quick results, paying down existing debt can be the most effective way to boost your credit. Paying off credit card debt lowers your credit utilization. Once the creditors report the new balance to the credit bureaus, you could see an increase in your credit score in as little as 30 days.
Because of the big impact paying down debt can have, it’s one of the most-recommended ways to improve your credit. “If you have a windfall, put it toward your credit card debt,” suggests Block. “Not only will you increase your credit score by reducing credit utilization, but you’ll also save money because you won’t pay as much in interest,” he says.
4. Get a Secured Credit Card
For those with bad credit or no credit, secured credit cards can be a good option if you need a credit card. You put down a security deposit that acts as your credit limit. You can use the card for purchases and, once you reach the limit, cannot make another purchase until you make a payment.
Over time, a secured credit card can help you build credit if you use your card responsibly and make all of your payments on time.
5. Apply for a Credit Builder Loan
What if you’re starting from scratch? If you have no credit history at all, you may want to consider a credit builder loan.
When you open a credit builder account, the lender moves the loan amount into a locked savings account. You make installment payments toward the lender over a period of six to 24 months. As you make payments, the lender reports your activity to the credit bureau. At the end of the loan term, the lender releases the funds to you.
Just keep in mind that making payments late can hurt your credit even further, as late or missed payments are reported to the credit bureaus, too.
According to the CFPB, participants that didn’t have existing debt when they took out the loan saw their credit scores rise by 60 points— enough of an improvement that a borrower could enter a better score range. For example, someone with a 620 (Fair) score could rise to 680 (Good), helping them qualify for better rates.
6. Don’t Waste Your Money
Many debt relief companies make big promises. But you should be wary. The CFPB issued a consumer advisory warning people about paid credit repair services. The fees these companies charge are often high, and you can accomplish the same results on your own. “If someone promises a quick fix, go somewhere else because there’s no such thing as a quick fix,” advises Griffin.
Despite what some companies might claim, accurate negative information can’t be removed from your credit reports, says Griffin. So you could end up paying your hard-earned money for nothing. Instead, focus on keeping up with your payments, keeping your credit card balances low, and avoiding new credit lines to improve your credit.
7. Ask for Help
If you have bad credit and are overwhelmed by debt, reach out to a non-profit credit counseling agency. A certified debt or credit counselor can help you create a budget, develop a debt repayment plan and even negotiate with your creditors.
“If people are looking for a credit counseling agency for help, I recommend that people make sure the company is a non-profit and look at their credentials,” says Block. “You want an agency that is a member of an organization like the National Foundation for Credit Counseling (NFCC) and licensed within your state,” she adds.