What Lowers Your Credit Score and How to Long Does It Take to Repair Your Credit?
Over 183 million Americans have at least one credit card. Others don’t have a credit card but have other types of credit, such as student and auto loans.
Having any kind of credit makes you a credit-active consumer. This means you have a credit score.
How is your credit? Poor? Average? Good? Excellent?
If you’re anything like most Americans, you probably have average or good credit. However, it can decline or rise depending on various factors that can change your credit report information.
In this article, our focus is on declining credit.
After knowing what a credit score is and how important credit scores are, you should know what lowers your credit score and how long does it take to repair it? Keep reading to learn more.
What Lowers Your Credit Score?
A low credit score makes your access to cheap credit harder. A landlord can also reject your tenant application if they do a credit check and establish that your credit is bad or poor.
So, what pushes your credit score to the red zone?
If you miss the deadline for making a loan or credit card repayment or default on a loan, your credit score will take a hit. Payment history makes up 35 percent of your credit score, meaning a poor history will have the biggest negative impact on your score.
Slacking on your utility bills might also affect your credit. We say might because utility bills such as rent don’t typically show up on a credit report, but if you go for months with paying your rent, for instance, your landlord can report you to a credit rating agency.
Credit utilization is the amount of credit you have used up compared to your credit limit.
Let’s say you have a $1,000 credit card. If you spend $800 this month, your credit utilization rate is 80 percent.
A high utilization rate (anything above 30 percent) is bad for your credit. Spending too close to your limit probably means you’re in financial pressure, which is a negative credit indicator. On a $1K card, you shouldn’t spend more than $300.
Every time you apply for new credit (bank loan or credit card), the lender will do a hard check on your credit. This inquiry hurts your score.
If you make multiple applications for new credit, there will be multiple hard inquiries on your credit, causing downward pressure on your score.
Foreclosure and Repossession
Foreclosure and repossession happen when you default on your mortgage and auto loan, respectively. These two events will send your credit score tumbling.
A foreclosure, for instance, will stay on your credit report for at least seven years.
How Long Does It Take to Rebuild Credit?
If your credit score is in the red zone, it’s in your best interest to rebuild it. But how long does rebuilding take?
Well, this depends on how low your credit is, as well as what lowered your score in the first place. If your credit fell as a result of missed credit card and loan payments, the solution is to catch up on those payments. You will see an improvement within 3-6 months.
However, if you’ve got a debt settlement, foreclosure, or repossession on your credit report, it can take a couple of years for your credit to climb back into the green zone.
A lot also depends on your consistency. If you start rebuilding your credit but then slack off after a few months, you won’t be doing your score any favors.
Time to Repair Your Bad or Poor Credit
So, what lowers your credit score? A poor payment history, high credit utilization, and too many applications for new credit, just to list a few.
There’s no shame in having bad or poor credit, though. We have all made financial mistakes.
The good news is bad credit isn’t a life sentence. Regardless of whatever hurt your score, you can also shake it off and achieve good credit once again. How long that takes ultimately depends on the nature of your credit.
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Photo credit, Daniil Vin, Via Flickr