The knowledge of credit score is quite common nowadays. There is a lot of awareness and interest among the individuals to know and build their credit scores. Everyone looks to have the perfect credit score that can make credit easily available as and when required. Having easy access to credit can help you own assets like house, vehicles, fund your entrepreneurial ambitions or sail through periods of emergency.
You might end up with a poor credit score due to a numerous reasons. It could have either gone down suddenly due to grave credit mistakes like settling a loan, or over a period due to reasons like prolonged nonpayment of your earlier EMIs.
However, the question on the minds of many of you must be: How long does it take to improve your credit score?
Anyone who has trained for a Marathon or learned a musical instrument will know that the goal is achieved only through extended periods of consistent practice.
Similar is the case with your credit score. As they say, Rome was not built in a day. Similarly, your low credit score cannot rise overnight. It needs persistent responsible behavior with credit over a period of time to see positive results on your credit score.
It is difficult to set a time period by when your credit score could improve. It depends mostly on the reason for your low credit score and how you go about getting it right.
Let us see some examples of reasons for low credit score and how sooner could the improvements start taking effect.
Delayed Payments
Delayed or missed EMI payments and Credit Card outstanding are the main reasons for a low credit score. If you have not been prompt in your payments towards your credit, then there are chances that you would have ended up with a low credit score. One odd missed payment may not make much of a difference, but if you missed payments for months together or missed repaying EMIs for multiple loans in a single month then your score may go low after the same is being reported to the credit bureaus.
To improve your credit score in this situation, you will need to keep up the trend of making prompt payments and demonstrate it over a period of time before your credit score moves up. A minimum of 3 prompt repayments may be required.
Also, you should take note of the fact that each bank has a schedule for reporting to the credit bureaus, which might at times be about 30-45 days after your payment. Therefore, you must be prepared to wait during that time to see your score move up.
High Credit Utilisation Ratio
If your credit utilization ratio is the culprit for your low credit score, then you should take steps to reduce the ratio. A spending of about 30-40% of your overall credit limit is what you should be aiming at. You can reduce your utilization by taking simple steps like increasing your credit card limit or splitting the usage between 2 or more cards.
Your credit score can start inching higher only after you show some sustained periods of lower utilization which could range anywhere between 3-6 months, or even more to get to the highest levels.
Additional Reading: How can I lower my card utilization ratio?
Imbalanced Credit Mix
A responsible borrower of credit always has a healthy mix of secured and unsecured credit. On the other hand, individuals with too many unsecured borrowings are construed to be credit hungry. This is not being viewed kindly when assigning points for credit score.
When you have too many unsecured borrowings like personal loans or credit cards, your score would be low. To bring your score up, you would need to close some of your unsecured borrowings by either prepaying your loan or waiting till the loan runs through its term.
In this case, there is no definitive time when your credit score will improve, but when you have a balanced mix, you would start seeing the improvement if you keep making consistent repayments.
Too Many Hard Inquiries
Inquiries are counted as Hard inquiries when the potential lender enquires about your credit score and credit report with the credit bureau before approving any credit. If you have been applying for too many loans or cards quite often, it is going to impact your credit score.
To bring your credit score up in this case, you would need to stop applying for unnecessary credit for a sustained period of time. It might go up 1 year also. You should also understand that your credit score has a rollover system: the newer data is taken into consideration rather than the older data for certain components like the Hard Enquiries.
Hard Inquiries in the past 1 year is what matters for your score.
Errors in Credit Report
Errors in your credit report or credit history can take your credit score down. To know what the errors in your report are, it is very essential that you keep checking your report as often as possible to catch errors, if any. Certain errors like your loan being shown as Settled when it is just closed might have a grave impact on your score.
As soon you notice an error, you should take it up with the credit bureau or your lender and see to it that is set right at the earliest.
In cases like these, your credit score should move up as soon as the error is set right in the books of the credit bureau.
Additional Reading: What are the common credit report errors one should be aware of?
Credit History
Your credit history is also one of the components of your credit score/report. Lenders and credit bureaus attach more weight to seasoned borrowers with a long history of handling credit responsibly. If you have a very short credit history, then you will have to wait till you have a long enough history to have a good score.
On the other hand, those who already have long histories could see their credit scores move up when they close their current loans. However, if you close any of your older credit card accounts, (which are running accounts which unlike the loan accounts are not closed when all repayments are made) then you may see a drop in credit score.
Improvement In Credit Scores When You Do Not Have Credit History
For those who are just in the beginning of their careers or who have never used credit before, they will have no Credit History. Such individuals are often marked as 'NH' (No History) or even shown with a Figure 0.
In cases like these, individuals would need to build their credit history. They could do this either by using a Prepaid Credit Card or a using a Secured Credit Card. Generally, it is difficult to get credit without a credit score, but products like a Prepaid Credit Card or Secured Credit Card are available even without a Credit Score.
Additional Reading: Learn what are your options for credit when you don't have a credit score.
Take Assistance of Credit Repair Services
Quite often individuals find it daunting to navigate through the maze of credit jargons and actions needed to build up your credit score. For those, help is just a call/email or a click away.
CreditMantri offers credit improvement service for all those who are looking to improve your credit score. We not only provide a thorough analysis of your credit report but also give you simple actionable steps through which you can easily increase your credit score.