Low credit scores have far-reaching implications. They make borrowing difficult or expensive. When lenders evaluate applicants, they predict their behavior by looking at data from major bureaus. A poor total makes you look like an irresponsible borrower, someone unable to repay debts on time. Fortunately, there are ways to fix this indicator.
Scores drop due to various reasons, from late payments to mistakes on your reports. If the data is inaccurate, credit repair companies will help you dispute and delete the errors. Otherwise, all you can do is work on your own budgeting and financial habits.
How Long Does It Take?
This depends on your starting point. Scores stemming from inaccuracies are fairly easy to fix. If you delegate to professionals, they will liaise with the banks, bureaus, and collectors on your behalf. ‘Can I do the same and repair my credit myself?’, you may wonder. Yes, it is possible — check the link for practical tips.
The total may also be low because you have only recently started borrowing. In this case, you can achieve the goal relatively quickly — within months. Just open your first credit card and make payments on time.
The worst-case scenario is when the drop is caused by your own recklessness. If you have fallen behind on payments, it is high time you got back on track. Consumers who have filed for bankruptcy need years to return to favorable levels. Bear in mind that negative information remains on your report for up to seven years, while positive records may stay there forever.
What Makes up the Score
The three-digit total calculated in the FICO model depends on five criteria. Aside from your history of payments, the organization considers the use of credit limits, the length of history overall, the number of different products, and new applications. No, let’s examine each of the other elements closely.
1. Credit Utilization (Debt Against Available Funds)
This percentage is calculated as the total of your balances divided by the sum of your available limits at any given time. Basically, it shows how much of the accessible funds you are actually using. The best FICO scores are associated with ratios under 11%. Generally, you should keep this indicator below 30%.
To lower the ratio, you could open a new card. This will increase the size of available funds. On the other hand, you may cover your balances, so they shrink faster. Either way, your score will improve.
2. The Length of History
If you have an old account you are not using (for instance, a credit card), canceling it is not always a good idea. The older your records — the better for the score.
3. Mix of Products
Using several types of credit works in your favor. For instance, you may have a mortgage, several credit cards (recurring credit), and another installment loan. This shows your ability to manage different types of obligations successfully. Note: this does not justify submitting multiple applications at once. This creates too many hard inquiries on your reports, which is counterproductive.
The Most Difficult Cases
Repair takes the longest if the score is damaged by multiple late payments, bankruptcies, etc. Generally, the effects of irresponsible borrowing linger for years. Bankruptcies and home foreclosures are the most detrimental (on average, you need 6 and 3 years to overcome them, respectively).
Missed payments may continue to affect the score for over 18 months, and they stay on your records for up to 7 years. This is why it is so important to fulfill obligations on time. Any delay of over 30 days is reported to bureaus, which pulls the score down immediately.
Make the Right Conclusions
Borrowers who find themselves in a difficult financial situation should contact their lenders and negotiate. Do not just miss payments and let your score diminish. You may be offered a restructuring opportunity.
If some of the information is false, you may accelerate the process by getting professional fixing services. Still, you should be ready to wait for months. The experts will collect your records from all major reporting agencies and scrutinize them line by line.
They will identify debatable entries and collect evidence to disprove them. Next, they will engage in formal communication with banks, bureaus, and collectors on your behalf. After mistakes vanish, your score will rise, but this never happens overnight.
In the meantime, while the agency is disputing the errors, you should rebuild your history by paying off existing debts. Some companies specialized in repair give access to a special line of credit, so you can start improving your records faster. Work on your budgeting, so you never make the same mistakes again.
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