Raising your credit score and improving your financial health is like exercising: the results take time, discipline, and consistency. It’s possible to see your credit score improve within one to two months after taking recommended actions. That said, there are several factors that ultimately determine this timeline, including what financial incidents you’re recovering from and what steps you’re taking to recover.
Certain financial incidents can have major impacts on your credit score, including missed payments, bankruptcies, and home foreclosures. Recovering from major financial incidents can take at least one year, and sometimes over six years.
The recovery steps you take will impact how fast your credit score will improve. Some recovery steps, like bringing your credit utilization rate below 30% and making your bill payments on-time, are more important components for credit score recovery than others.
Below, we have compiled an outline of the recovery times involved for consumers who want to improve their credit scores while having poor to fair credit (scores between 300 and 659).
Your credit score is determined through a unique formula with several different factors. From most to least important, these factors include:
Your payment history is the most heavily weighted factor involved when improving your credit score recovery time, making up around 35% of your overall credit score. For this reason, paying your bills consistently on time is one of the best and easiest ways to improve your credit score. If you have any past due accounts, you should pay off the oldest ones first.
Credit utilization is another important factor that affects your credit score. It determines around 30% of your overall score. Simply put, your credit utilization is how much credit you have used up compared to the total amount of credit available to you. You should always aim to keep your credit utilization rate below 30%. If you are looking to improve your credit score to buy a house or get a loan, it is important to know how much of your total available credit is being used and to keep it at the lowest amounts possible.
A key component that can affect your credit score is the age of the oldest account on your report; in this case, the older the better! By keeping older accounts open, you are building your credit history and your total available credit (which plays a role in credit utilization), showing lenders your ability to consistently pay down your debts without missing deadlines.
Lenders and creditors also like to see that consumers possess a diverse “credit mix.” A “credit mix” refers to the types of credit accounts that a consumer has, whether it is loans, credit cards, or mortgages. Typically, your credit mix will make up around 10% of your overall credit score. There are generally four different types of credit accounts you may find on your credit report:
It is not necessarily recommended that you open several new credit accounts just to create a diverse credit mix unless you are planning to use them, especially if you already have bad credit. As credit diversity only makes up around 10% of your overall score, we recommend focusing on more impactful factors, such as improving your payment history and having a balanced credit utilization rate.
In general, consumers with lower or “bad” credit scores, even those with a credit score of zero, are in a better position to quickly improve their scores compared to those who already have built a healthy credit score and credit history. Credit history accounts for approximately 15% of your credit score and is weighed based on how long your accounts have been open, how long it has been since you have used them, and whether they are still active. Most credit bureaus look for a minimum of six months of responsible credit history to calculate your credit score.
Building a credit score takes hard work and patience. It takes diligence and won’t happen overnight. However, there are a couple of things that you can do to start improving your credit score if you are in this position:
Paying bills consistently and on time shows potential creditors that you are financially responsible and trustworthy, which, over time will help increase your credit score. Although some lenders offer grace periods, it is important to make sure you pay all bills by the due date to avoid potentially being reported to the credit bureau. If you have any past due accounts, you should pay off the oldest ones first.
To keep track of your bills and ensure timely payment, we suggest:
Another easy way to keep track of your bills and avoid missed payments is to use Borrowell’s free bill tracking mobile app, available on the App Store and Google Play. Using this app, you can connect your bank account and let Borrowell automatically forecast your upcoming bills.
Your credit report includes financial information about your credit history. Consumers are often concerned about how long information will stay on their credit report and how it will affect their credit score.
If you are wondering when something will come off of your report, there are set time frames for items like bankruptcies and collections that Canada’s credit bureaus (Equifax and TransUnion) have put in place.
In general, negative information is deleted from your file 7 years from the date of last activity. Some negative information can remain on your credit report for longer than others.
Credit score improvement is a key priority for many consumers on their financial journey. Here at Borrowell, we understand the importance of being informed about the tangible steps needed to make impactful financial changes. As a summary, there are 8 key steps you can take to immediately improve your credit:
As we often mention, the quickest way to improve your credit score, sometimes in as little as 30 days, is by paying your bills on time and using less than your available credit limit. These actions, when done consistently, may improve your score by as many as 100 points.
It is also important to note that your payment behaviour is reported to credit bureaus every 30 days; by taking consistent steps towards making timely payments and staying within your credit budget, you will be able to, slowly but surely, improve your credit score.
Borrowell® is a registered trademark of Borrowell Inc. All Rights Reserved. The Equifax credit score is based on Equifax’s proprietary model and may not be the same score used by third parties to determine your credit profile. The score provided to you for educational use is the Equifax Risk Score.
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