How Long Does it Take to Rebuild Credit?

Your credit report and credit score play significant roles in your ability to buy a home or car, qualify for credit, and in some cases rent or obtain employment.  Blemishes on your record in the form of delinquencies, legal actions or bankruptcies can damage your credit.

The journey to restoring your credit report does not have a set period of time. It involves some work, the reestablishing a good payment history and the making of smart financial decisions.

Here are some tips to help rebuild and improve your credit.

Check Your Credit Report

In the rebuilding process, you must contend with negative items on your credit reports. These consist of late payments, foreclosures, judgments, bankruptcies, collections, repossessions, or some combination thereof, which have driven your credit scores downward. According to the Fair Credit Reporting Act (FCRA), the laws that credit reporting companies must abide by, the credit reporting agencies can only report items that are 100% accurate.  If the information contained on your credit report isn’t 100% correct, then according to FCRA, that item must be removed. Checking your credit report and reviewing the details to make sure items are 100% accurate is easy especially when you are entitled to a free copy of your credit report once a year. Check for the accuracy of negative items being reported such as:

*Late payments.
*Civil judgments.
*Foreclosures.
*Tax liens.
*Bankruptcies.

Chapter 13 stays on you record for seven years from the date of your filing. In a Chapter 7 (liquidation), the reporting period is ten years from the date of filing.

Note that, as of July 2018, credit reporting agencies have ceased reporting judgments and tax liens, unless the judgment is accompanied by at least three of these four items:

*Name
*Address
*Full Social Security Number
*Date of Birth

The bureaus should remove judgments and tax liens that lack this required information.  If you find that any item on your credit report is less than 100% accurate, then you must dispute any false and incorrect information directly with the credit reporting agencies.

The process of filing a dispute can be frustrating.  But it is worth the fight. If you find you are not getting the results, you may want to consider hiring a Consumer Litigation Lawyer who can file a state or federal lawsuit against the credit reporting agencies for violating the Fair Credit Reporting Act.  You may be entitled to statutory or actual damages as well as attorney fees.

Build an On-Time Payment Record

A record of timely monthly payments is a large factor in your credit report. There are ways of getting credit for timely payments that you may already be making that you can take advantage of.  These positive trade line items will offset any negative marks and help along the journey to rebuilding your credit. These are some good options to demonstrate a good payment history.

Rent and Monthly Utility Bills

If you consistently and regularly make your monthly rental payments on time, consider requesting your landlord to report those monthly rent payments to the credit bureaus. Overall, rent payments remain rarely reported to credit bureaus.  It is estimated that less than 1% of credit files contain rental entries. But all three major credit bureaus – Equifax, Experian and TransUnion do include rent payment information in credit reports if they receive it.

Likewise, utility companies traditionally do not report your payments. However, through something like Experian’s Experian Boost, you may build a positive record of paying your water, sewer, electric, wireless and cable bills. The best part about using Experian Boost is that it only consider’s on-time payments, so you don’t have to worry about late payments having a negative impact on your credit score. However, missed payments may lead your utility provider to refer the past-due amounts to collections, which may appear on your credit reports and thereby harming your rebuilding efforts.  

Existing Credit Accounts

If you’re financially able, you may stunt some of the negative effects of late payments and other adverse information by paying on other accounts.

A bad credit history, even including a bankruptcy, does not necessarily extinguish all opportunity to show good payment history on debt. Upon successful completion of a Chapter 13 plan, your mortgage will continue. In Chapter 7 cases, debtors may reaffirm vehicle or other certain secured debts. Student loans backed by the federal government are not discharged in a bankruptcy proceeding. With such accounts continuing after a bankruptcy, you still have on-time payments that can appear on your credit report.

If you find yourself falling behind on some debts, it’s important to maintain a positive payment history on others to try and soften the blow of those late payments.

Other Accounts

Banks and other credit issuers have products that help you build a payment history and demonstrate your ability to handle credit once again.

Secured Cards. With a secured credit card, you deposit a certain amount of money into an account. The deposited money backs your repayment obligation and serves as the credit limit. In a sense, the use of the card equates to withdrawals of your money as if you had a checking account. However, secured credit cards retain the essential features of a credit card. You have a monthly payment and the accumulation of interest. Consistent on-time payments demonstrate renewed responsible handling of credit.

Become an Authorized User.  Getting added to someone else’s credit card account can give you a boost to your credit.  Before you consider becoming an authorized user on another person’s credit card, the first, and most important thing to look for is whether the primary account holder pays their bill on time.  If they do, you will inherit that primary card holder’s positive payment history. With responsible use, including on-time payments, you can get noticed by credit bureaus as someone who might use credit wisely.  This is a great way to rebuild your credit. Conversely, if the primary card holder has a bad payment history or neglects to make timely payments, that too will impact your credit but for the worse. 

Lower the Utilization Rate

As you obtain credit, avoid the appearance that you are over-extending yourself. This means keeping your credit utilization rate low. This ratio measures the sum of your outstanding balances relative to the available credit. To determine your utilization rate, use this formula:

*Balance / Credit Limits

If you owe $500 on your credit cards and have credit limits of $2,000, your utilization rate stands at 25 percent.

At the outset of rebuilding credit, you can expect low credit limits. To maintain a low utilization rate means very limited use. With on-time payments for several months may come automatic credit limit increases by the card issuer. To position yourself in the best light to ask for a credit line increase, show circumstances such as:

*Increases in income

*Your monthly expenses, such as utilities, rent, mortgage or other loan payments.

Conclusion

In the end, it is possible to restore your credit score after a mishap.  Exactly how long that process takes depends. Even without any effort, the effect of time will heal and improve your credit.  However, to accelerate the rebuilding process involves a mindset of gradual and disciplined use of credit. So stick with it and you may be surprised at how quickly improving your credit can be done.