Tips for repairing your credit score
Rebuilding your credit is within your control. By making your payments on time and in full, you can improve both your credit score and your credit report. Here's what to expect during the credit-rehabilitation process.
Recovery time: According to FICO, the leading credit scoring firm, it takes 7 to 10 years to repair your credit. Here is how long various financial problems remain as part of your credit report:
- Late payments: 7 years
- Foreclosures: 7 years
- Collections: Typically 7 years, depending on the age of the debt being collected
- Public Record: Typically 7 years
- Chapter 13 bankruptcy: 7 years
- Chapter 7 bankruptcy: 10 years
- Unpaid tax liens: no expiration date
Improving your credit score: Your credit score is a numerical value that describes how well you've handled credit. Your credit score will go down if you miss payments, default on loans or go through bankruptcy, but the good news is you can start to repair your credit score immediately with the right behavior. For example, your credit score may begin to improve soon after your bankruptcy is discharged if you always pay your mortgage on time. Ultimately, this will help repair your credit report too.
Quick fix for one-time slipups. A late payment on a loan or credit card bill will reduce your credit score, but if you get back on track within 30 to 60 days your score can quickly bounce back. However, do not allow your payments to get past 90 days overdue; when that occurs, it can damage your credit score for two years. Using the free automatic bill payment and alert features available with online banking is a great way to help you make on-time payments.
Longer-term strategies to build your score. If your score is too low to qualify for a traditional credit card, considered rebuilding your credit with a secured card: you deposit money in a security deposit account, and this is used as collateral for your credit card.
Other ways you may build your score include diversifying your credit report by applying for a loan or line or credit, saving for larger credit card purchases so you can immediately pay off your credit card debt, and always paying your bills on time and in full.
Stay motivated. There's no magical way for a 600 FICO credit score to rapidly skyrocket to 750. (The FICO score range is 300-850; any score above 720 is considered excellent.) It can take months, and in cases of a bankruptcy, several years to bring your score all the way back to good health. Stay focused on the eventual payoff: with a higher credit score you will be in a position to qualify for better credit terms. Review your credit report regularly with the main credit bureaus (Equifax, Experian and TransUnion). Not only will this help you catch any mistakes that are hurting your score, seeing your credit number rise will also keep you motivated.
And remember that while time is a big factor in repairing your credit history, your current and future handling of credit is even more important. Now is the perfect time to develop the good habits that will improve your credit score.
What's next? Credit counseling: How to find help when you need it