Credit scores are a reflection of one’s credit behavior in the past. Based on how someone has treated their loans and credit card dues in the past prospective lenders aim to estimate how they are likely to behave in the future. Someone who does not have a credit history of at least six months is not rated so building your score takes time. Again the rating is calculated based on various factors and only one aspect cannot make or break the score, it is a combination of five factors that are considered over a period of time starting right from your first loan or credit card.
What Can Harm Your Credit Score?
Before we discuss about rebuilding the credit score let us discuss what can spoil it. There are five factors that are taken into account when the rating is calculated; some are more important than others and hence contribute more than other factors to breaking or making the score. Rebuilding your score would also depend on what in the first place has caused it to go downhill and what is the intensity of the problem/s. It is important that one checks their credit rating once in a while; you can access your free CIBIL Score to figure where you stand on the credit health spectrum.
Repayment history and credit utilization ratio are the biggest contributors to the score calculation and hence any problems in this area can harm the score in a major way. Frequency of defaults also is important; a single missed payment in an otherwise regular payment record or the credit utilization ratio being high once in a while are not likely to cause any major trouble. Other three factors like credit mix, age of credit and credit enquiries cannot be ignored. Though these factors weigh in less than the other two yet they also make a difference when the final score is calculated.
How Fast Can You Rebuild Your Score?
Anuj required a personal loan; his application was denied to a low credit score. He looked at his credit report and realized that the score was low due to a few missed payments and also because of multiple hard enquiries. He spoke to a few experts on how to better his score and how long will it take to get it back on track. He was informed that it will take him a minimum of six months; he could not wait for that long. He had no choice but to explore the option of bad credit personal loans to fulfill his requirements.
Ideally no one wants to be in a position like Anuj but if one is caught in it then how long before you can expect your score to be healthy again. The time taken to rebuild the score will depend on why the score is low and also how old the problem is.
If the score is low because of unpaid credit dues, a loan dispute or an error then these problems can be resolved fairly easily and your score will improve as soon as the problem is taken care of. Repaying the old dues or getting the errors removed will not take much time and one can see the impact within months.
When problems relate to recurrent missed payments, settled loans in the past, frequently high credit utilization ratio or a poor credit mix then rebuilding the score could take time. Repayment history of last 36 months is reported in the CIR and one can do nothing about the past record so what they can do is be regular in future. Similarly if one has been reckless in using the credit card in past then they can just be more careful in the future. Make sure there are no over dues in your CIR, keep the payments regular and credit enquiries minimal. This will ensure that no further negative points are earned and the credit score will improve over time. This could take from a couple of months to years depending on how bad the score is.