How Long Does it Take to Repair Your Credit?

It takes years to truly repair your credit from a major credit problem. Examples of problems include default, foreclosure, repossession and bankruptcy. It can take up to two years to even recover from one late payment. Simply put: there is no fast way to fix up your credit. However, there are some techniques that can give you a small boost. Applied consistently, these techniques will raise your credit from even a low score in the long run.

Use Credit

You cannot build a credit score by refusing to spend on credit. In fact, the exact opposite is true. A person who refrains from using credit all together will only see a lower credit score in the end. Using your credit does not mean spending in excess. Many people think using a credit card for luxury purchases is a good way to build credit; these people find high credit card bills they cannot pay. It is typically better to use your credit for routine purchases you will need regardless. Then, you can pay these purchases off with the funds you have allocated toward them.

Pay Down Balances

Your debt to asset ratio is a huge factor in your overall credit score. Building up assets is critical, so look for opportunities to purchase equity such as stocks, small electronics and even automobiles or homes. The volume of your assets is not considered on its own. This works in your favor, because even a small asset base can help you raise your credit score if you maintain a good debt to asset ratio. Pay down balances on loans and credit cards to improve this ratio. Aim for a 10% or lower balance on any open credit line. Seek to have assets outweighing your debts by 150%.

Seek High Risk Loans

High risk loans are the fast-track option to quickly build credit. As their name implies, they are risky to both you and the lender. The highest risk loans are short term and do not use collateral. Taking a 12-month personal cash loan, for example, is taking a high risk loan. Some borrowers will take these loans even if they do not need the funds. They set funds aside to make the payments each month. When the loan payments are all made consistently, and the loan is paid off in time, the borrower sees a huge boost in credit. It is possible to raise your score 50 points or more through just one loan. The interest on the loan will make this an expensive choice, however.

Dispute Credit Problems

You can dispute negative activity on your credit report. In particular, look for claims made by a collections agency. Often, collections agencies do not have a legal right to the debt they are seeking to recover. These debts can be disputed successfully a large majority of the time. You can dispute your report online when you access it through any of the three credit bureaus. You may also elect to submit a written letter, but online tends to be faster and easier than writing the bureaus.

Does paying collection debt raise your credit score?

When you pay collection debt, you may not actually see a large repair to your credit. By the time a debt goes to collections, you are likely already 30, 60 or 90 days late on the payments. The damage has been done, and you cannot repair that damage with one move. However, you may be able to get the collections company to remove the negative report against your credit. The moment you are contacted by a collections agent, respond immediately to verify you owe the debt to this agency. If so, ask the agency to take the report off your credit if you pay immediately. 

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