Having good credit is important for many reasons. Unlike in the past when credit scores were only used to determine approval for loans, today they’re used for many other things.
Some of these include potential landlords, auto insurance rates, homeowner’s insurance rates and even potential employers. Your credit scores play an important part in determining if you’re approved for a mortgage.
Unfortunately, raising credit scores takes a lot longer than it does to lower them. Get the facts about credit scores here.
What Determines Credit Scores?
Your credit scores are determined by five different factors, each of which plays a different role.
- Payment history – 35 percent – This means how you are about paying your bills on time both now and in the past couple years.
- Credit utilization – 30 percent – This is the amount of your available credit you have used up in comparison to the total amount available.
- Length of credit history – 15 percent – This is how long you have had credit accounts. The longer you have accounts, the more it helps your scores.
- Credit mixture – 10 percent – This is the different types of credit such as credit cards, installment loans, mortgages, etc.
- New credit – 10 percent – This is the amount of new credit that has been opened recently.
How to Improve Credit Scores
Since there are various things that have gotten your credit scores to where they are, there are also various things that need to be done to improve them. One of the most important things to do is make sure your monthly bills are paid on time each month. If you have small debts, do your best to pay them off as soon as possible because that will improve your credit utilization.
Do not open any new accounts if you’re trying to improve your scores. Do not apply for several credit cards because the hard inquiries on your credit report can also lower your credit scores.
How Long do Certain Things Stay on My Credit Report?
Many people don’t realize that negative things on a credit report can stay on and affect credit score for years. A few missed payments or an account sent to collections may be corrected quickly. However, being corrected quickly does not necessarily mean they are removed immediately from your credit report. Below are some of the causes of bad credit report scores and how long these things stay on your credit reports.
- Accounts in collections or charged off – Stay on seven years from the date the lender reports the first missed payment. If you make payments during the seven years, it’s still going to be on your report, but it won’t have such an impact.
- Late payments – These may be on the credit report for up to seven years from the date of the first missed payment…even if you pay the past-due amounts. For example, if a payment was missed in September 2013, it would come offer your report in September 2020.
- Bankruptcy – Depending on the type of bankruptcy, it can remain on your credit report anywhere from seven to ten years.
- Repossessions, foreclosures or similar negative accounts – These also remain on your credit report for up to seven years from the first late payment.
How Long Does It Take to Improve Credit Scores?
The time it takes to improve the actual credit score depends on why the score got to that point. For instance, if your score was low because of too much credit, the score will go up in a couple of months once you get some of the balances paid down. If the scores were low due to bankruptcies and collections, it can take years. Even though your credit isn’t perfect yet, your scores can go up just by continuing to pay the accounts down.
For instance, a score of 680 from late payments can go up to 780 in nine months even though it stays on your account for three to seven years. A foreclosure may stay on your report for seven years, but your score may go from 680 to 780 in three years. The important thing is to always try to make regular payments to work on the scores.