Rebuilding Credit – How Long Will It Take?

Credit

After experiencing a financial setback, it often feels like an insult to an injury when watching your credit score plummet. Whether you have been delinquent on a mortgage payment or have been forced to declare bankruptcy (or any other financial difficulty), these actions will generally result in a derogatory mark against your credit profile.

However, with a well-thought-out financial plan, adherence to smart financial habits, and a bit of patience, anyone can rebuild their credit. The trick to improving your credit profile recognizes the time it will take to reach your goal.

Rebuilding Credit – How Long Will It Take?

The reality is that there is no one correct answer as to the time required to rebuild one’s credit profile and score. The time needed to rebuild credit will vary and depend on the individual’s current credit and the timing of past credit issues. For example, someone delinquent on several payments over the past 24 months should expect it will take more time for their credit score to improve than someone else who missed a similar payment six years ago – if their payment history has been stellar since the last delinquency.

While a definitive answer for rebuilding one’s credit may seem elusive, the reality is that the best time to begin is now! Consider the suggestions below as you rebuild your credit.

Check Your Credit

Before one can rebuild their credit, it is essential to know one’s starting credit profile and score. A credit check is available for free from the nation’s three largest repositories –

  • TransUnion
  • Equifax
  • Experian

Data included on a credit report tends to be updated about every 1 to 1.5 months, although there is no specific formula or deadline. A bankruptcy reported on your credit check typically stays on the report for up to a decade from the filing date of the bankruptcy. This delinquency (and its impact on a credit score) drops automatically from a credit report after the preset allotted time.

In addition, hard inquiries (which appear as the result of a credit check when applying for new credit) will remain on a credit profile for up to two years.

Devise a Well-Thought-Out Financial Plan/Budget

Rebuilding one’s finances requires a budget and commitment to stick to it. Budgets offer transparency and insight into one’s financial management. A budget should include full, on-time payments, one of the simplest and most effective techniques to rebuilding credit.

Make Sure Goals Are Reasonable & Attainable

When rebuilding credit, it is a good idea to set attainable goals that will allow one to track their progress towards improved credit.

Seven out of ten households find it challenging to save because of an unexpected expense, with six in ten consumers experiencing some form of financial shock over the past year, according to the Consumer Financial Protection Bureau (CFPB).

Prudently Manage Credit Use

Credit card management is a helpful tool for those who want to rebuild credit. And while it may seem that closing out credit card accounts is intuitively correct, it is noted that closing a credit account may hurt a credit score.

Credit management can be measured in terms of credit utilization rates. A credit utilization ratio is simply a mathematical comparison of one’s total credit being used against one’s total credit available. For example, if you have $10,000 of available credit but have outstanding credit liabilities of $4,000, the applicable credit utilization ratio would be 40% ($4,000/$10,000). But note it is a good idea to keep this ratio as low as possible, and ideal if it stays below 30%.

Credit Check Often & Routinely

With a budget in hand and a commitment to an innovative financial plan, you have already made significant progress towards rebuilding your credit. But it is prudent to monitor your progress by ordering a credit check periodically. Additionally, life happens, and budgets may need to be revised to reflect life events and changes.

The Bottom-Line

Rebuilding credit resembles a marathon, not a sprint. Remain patient and make adjustments as needed to reach your financial objectives.