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How Long Does It Take to Rebuild Your Credit?

Sandra MacGregor

Feb 14, 2022 11 min read

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The time it takes to rebuild credit.
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    Rebuilding your credit is a lot like exercising or learning a new skill: it takes time and requires discipline, patience, and consistency. The good news is that there are steps you can take to rebuild your credit after a negative financial event. 

    There’s no exact timeline as to how long it takes to rebuild credit. That’s because how quickly you can improve your score depends on what type of negative information on your credit report is bringing your credit score down. For example, one missed payment might only take three to six months to recover from. A more severe event, like a consumer proposal or bankruptcy, could take over six years to fully recover from. 

    If your credit score is below-average (below 660), it may only take a few months of recommended actions to start seeing your credit score move up. If you’re rebuilding a bad credit score (below 575) after a consumer proposal or bankruptcy, it could take as many as six years or more to fully improve your credit from bad to good. 

    But don’t let a lengthy timeline dissuade you. Each step you take to improve and rebuild your credit will cause incremental but worthwhile increases to your score. 

    Steps to Rebuild Credit in Canada

    There are specific steps you can take to rebuild your credit after a negative event. You can establish a good credit history and rebuild your credit score by following these steps.

    Settle Collections and Debts

    The first thing you’ll want to do is clear out any outstanding debts held by creditors or collection agencies. Canada’s credit bureaus (Equifax and TransUnion) will keep charged-off accounts on your credit report for about six or seven years. Though you’ll have to wait out the full period of time even if you eventually pay off the debt, the credit bureaus take payments into consideration. Paid-off accounts will have less of a negative affect on your overall score than outstanding debts. 

    Check Your Credit Report

    Credit bureaus not only give you a credit score, they also generate personalized credit reports, which contain detailed information about your entire credit history. When looking at your credit report, lenders can see details like all your loans and credit cards, any late or missed payments, how much debt you have, and whether you ever declared bankruptcy. 

    There’s a lot of your personal financial information on your credit file, which is why it’s absolutely essential to download your report and review it several times a year to ensure that there are no inaccuracies. Even a small error, like an on-time payment mistakenly marked as late, could seriously derail your score. Keeping on top of your report can also help you protect yourself against identity theft. 

    Dispute Credit Report Errors

    Once you’ve reviewed your credit report, you might notice that there’s an error listed on one of your credit accounts that could be hurting your credit score. The good news is that you can dispute credit report errors with the credit bureaus in order to remove incorrect info.

    Both Equifax and TransUnion have a straightforward process to dispute mistakes on your report. They offer both online and mail options for sending your formal dispute claim. Be sure to lodge a dispute claim as soon as you find an error. The sooner you get any mistakes fixed, the sooner your credit score can bounce back. 

    Get a Secured Card

    A secured credit card is a great tool that can help you build credit while staying within a healthy budget. Secured credit cards are similar to regular credit cards, but there are some key differences between secured and unsecured cards

    With a secured credit card, you provide the lender an upfront cash deposit to secure your card. This deposit becomes the card’s credit limit, which is the total amount of money you’re able to spend while using the card. 

    Secured credit cards are often easier to get approved for than traditional unsecured credit cards (where cardholders don’t give a deposit) because the issuer is protected by a potential default on payments by your deposit. Like a traditional credit card, however, your repayments towards your secured card’s balance are reported to a credit bureau. Making regular repayments on your secured card balance can help you build credit history and improve your credit score over time.

    Sign up for a Credit Building Loan

    Credit builder loans are like a cross between an installment loan and a savings account, as they appear as an installment account on your credit report and can help you save up for a big purchase over time.

    With a credit builder loan, you don’t actually get upfront cash at first. Rather, lenders create a secured account that you make regular deposits into. Every month, you make payments to your credit builder account, and your lender keeps your funds secure. Lenders will report your regular payments to the credit bureaus, which will help you build payment history and your overall credit score. 

    Once your payments equal the total loan amount that you’ve requested, you’ll be able to access the funds. A credit builder loan or similar program is a great option for building credit while saving up for a large purchase, like a car or a home. This type of product is helpful if you’re recovering from bankruptcy or if you’re new to Canada and don’t have credit history.

    Make On-Time payments

    Payment history is the largest factor that influences your credit score, accounting for 35% of your score. Every time you skip a payment or even just pay a bill late, your score takes a hit. The more payments you make on time, the faster your score will rise. Being diligent about prompt payments is one of the single best things you can do to rebuild your score and establish a strong credit history.

    Pay More than the Minimum

    Making just the minimum payments on debts like credit card debt is very tempting, but it’s one of the worst things you can do for your finances. Interest has a sneaky way of multiplying faster than you realize, and soon you could end up paying thousands of dollars just in interest. This can make it much harder for you to cover your bill payments after a few months.

    Each month, try paying as much of your revolving credit balance in full as possible. Not only will this help you reduce your debt levels, it will also help you avoid hefty interest charges in the future.

    Have Rent Payments Reported to Credit Bureaus

    While it’s still rare for landlords to report rent payments to credit bureaus in Canada, it may start becoming more and more popular. Services like FrontLobby allow you to work with your landlord to get your rent payments reported to the credit bureaus. 

    Rent reporting might also be an option for you if your landlord is a member of the Landlord Credit Bureau. The LCB is a rent reporting agency that reports rent payments to Equifax. 

    Apply for a Cellphone Contract

    A cell phone plan can be a simple way for you to build good credit history. Paying your cell phone bill on time each month can help you rebuild your credit score. Most cell phone providers  report your monthly bill payments to credit bureaus, so cell phone payments can help boost your score. 

    If you make payments on-time, this positive information will be added to your credit report and could help you improve your credit score. However, if you miss payments, this could be added as negative information to your credit report, which will ultimately hurt your score. If you’re thinking about getting a cell phone, make sure you’re able to make your regular bill payments on time.

    Don't Open or Apply for Too Many Credit Accounts

    When you apply for a loan, credit card, or mortgage, your lender will request to look at your credit report. This hard credit inquiry, or hard credit check, will appear as an item on your credit report. 

    When you apply for many different loans or credit cards all at once, you will end up generating a lot of hard credit checks on your report. Too many hard credit checks on your credit file can hurt your score. They also signal to lenders that you may be in trouble financially and therefore may not be a suitable person to lend money to.

    If you’re thinking about getting loans or credit cards, focus on getting one product at a time. Shop around for just a loan or just a credit card. Credit bureaus won’t penalize you if you’re looking for one type of credit and have applied to a few different lenders.

    Keep Your Credit Utilization Under 30%

    Credit utilization is the amount of credit you’re using out of all the credit you actually have available. You want to keep your ratio as low as possible. A high credit ratio is taken as a sign that you may have overextended yourself and taken on too much debt. A good rule of thumb is to keep your credit utilization ratio below 30%. 

    Have a Healthy Credit Mix

    Credit bureaus like to see that you know how to manage different kinds of credit, including personal and car loans, credit cards and mortgages. This is known as your credit mix.

    If you’re recovering from a negative financial event, you likely don’t have a wide range of credit products under your belt. That said, credit bureaus like to see that you have at least two credit accounts that you’re managing responsibly. If you have a credit card (a revolving credit account) and a cell phone plan (an “open” credit account), this is a good credit mix that you can maintain while you’re building up your credit score. 

    Develop Healthy Financial Habits

    Following the above tips — such as making on-time payments and using a secured credit card to build your score — will help to nurture healthy financial habits. The more you practice these money saving steps, the sooner they will start to become second nature. 

    How Can I Rebuild My Credit Fast?

    Unfortunately, the hard truth is that there is no way to rebuild credit quickly. Rebuilding credit is a marathon, not a sprint. Credit bureaus want to see that you have the skills to manage credit responsibly over chunks of time that are measured in years, not months. The best thing to do is to carefully monitor the five factors that credit bureaus use to establish your score: 

    • Payment history (makes up 35% of your score)

    • Credit utilization (30%)

    • Credit history (15%)

    • Credit mix (10%)

    • Credit inquiries/credit checks (10%)

    Keeping in mind how much each of the above factors influences your score, will also help you decide what to prioritize. Clearly, payment history and credit utilization are the two main features you should focus on to build your score. Remember, each time you do something that negatively affects your score (like missing a payment), your rating will drop and it will take you even longer to get your score back on track.

    How Long Does it Take For Negative Marks to Disappear From Your Credit Report?

    Certain info stays on your credit report for a specific amount of time. In general, most negative information is deleted from your file after six years from the date of last activity. 

    Here’s a breakdown of how long negative marks will remain on credit reports.

    Financial IncidentImpact on Credit ScoreTime on Credit Report
    Hard Credit InquiryMinor3 years
    Financial Incident: Hard Credit Inquiry
    Impact on Credit Score
    Minor
    Time on Credit Report
    3 years
    Late/Missing PaymentMajor6 years
    Financial Incident: Late/Missing Payment
    Impact on Credit Score
    Major
    Time on Credit Report
    6 years
    Debt Settlement (paid)Major3 years
    Financial Incident: Debt Settlement (paid)
    Impact on Credit Score
    Major
    Time on Credit Report
    3 years
    Debt Settlement (unpaid)Major6 years
    Financial Incident: Debt Settlement (unpaid)
    Impact on Credit Score
    Major
    Time on Credit Report
    6 years
    CollectionsMajor6 years
    Financial Incident: Collections
    Impact on Credit Score
    Major
    Time on Credit Report
    6 years
    BankruptcyMajor7 years
    Financial Incident: Bankruptcy
    Impact on Credit Score
    Major
    Time on Credit Report
    7 years
    Double BankruptcyMajor14 years
    Financial Incident: Double Bankruptcy
    Impact on Credit Score
    Major
    Time on Credit Report
    14 years

    Can You Remove Negative Items From Credit Report?

    While it may be possible to strike a deal with an individual creditor and convince them not to report something to a credit bureau, once the bureau has registered a negative item on your report, it’s there to stay for the required time period. The one exception is if the negative item is a legitimate error; for example, if a payment that you made on time is reported as late. 

    If there is an error you want removed, you would need to follow the dispute procedure indicated on the credit bureau’s website. Generally, you’ll be required to fill out a form and submit it online or via the mail. You’ll also need to provide supporting documents that show proof of an inaccuracy. 

    The credit bureau will then reach out to a creditor to confirm there’s an error. It can take up to 30 days for the credit bureau to investigate and you’ll be notified about their decision once the investigation is concluded. If they find in your favour, they will update your credit file, if not, you can choose to include a statement letter explaining why you feel your file is inaccurate.

    What is the Importance of Having a Good Credit Score?

    It’s almost impossible to exaggerate the importance of having a good credit score. Potential lenders rely on your credit score and credit report to decide if you are creditworthy or not. A good credit score means that you’ll have more financial options and have a much better chance of getting approved for financial products with the most favourable rates.

    If your score is low and your credit report shows a few late or missed payments, or worse yet, a bankruptcy, you’ll have a much more difficult time getting approved for any credit products, like credit cards or personal loans. Employers and landlords have also been known to look at a person’s credit file before offering them a job or an apartment. A high score could even affect your chances of buying a home because having a good score makes getting approved for a mortgage with reasonable interest rates much easier. 

    How to Keep Track of My Credit?

    The easiest and most affordable way to track your credit is with Borrowell. When you sign up with Borrowell, you can review both your credit score and credit report for free anytime you want. It takes just a few minutes to sign up, and you’re not required to provide a credit card or SIN number. 

    Sandra MacGregor
    Sandra MacGregor
     | 
    Personal Finance Writer
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    Sandra MacGregor is a professional writer who specializes in topics such as finance, travel, health, and lifestyle. Her work has been featured in the Toronto Star, the Montreal Gazette, and the New York Times. She is a regular contributor to the Borrowell blog.

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