How many years does it take to recover a credit score and how do you do it?
There are two questions I get most frequently on the blog. The first is how do I get a loan on bad credit. The second, “How long does it take to rebuild credit?”
It may not seem like it, but they’re actually the same question.
Many borrowers, myself included, find out they can’t get a loan or affordable rates after seeing their credit score drop into bad credit. Maybe they miss a couple of payments or go through a foreclosure. Either way, they’re not able to get the money they need and want answers.
So it becomes a chicken or the egg problem. How do they still get a loan on bad credit or how long will it take to increase their credit score to get a loan?
It took me years to recover my credit score after the housing bubble burst but only because I had to spend the time to learn the tricks to boost a FICO. Let’s look at how long it really should take to rebuild your score and then I’ll share those tricks.
How Much Does Your Credit Score Decrease with Different Mistakes?
Before you can know how long it will take to rebuild your credit score, it helps to understand how different bad marks on your credit report affect the score. The FICO credit score company rarely reveals its data on credit scores but has released the table below.
The table shows the affect on your credit score after different mistakes like bankruptcy, being late on a mortgage payment and foreclosure.
The first thing you notice is that the change in a credit score is different depending on where you start. A bankruptcy hits a high credit score of 780 by as much as 280 points while someone with bad credit already may only see their FICO drop by 150 points.
It does seem that, “the higher they are, the harder they fall,” is also true for credit scores.
A lot of this is due to what I call the ‘trust’ factor in credit scores. Lenders trust someone with a pristine credit report and high FICO. On the other hand, even if they approve a loan, there’s always that distrust of someone with bad credit and missed payments on their credit report. That mistrust is evident in the double-digit interest rate.
When someone with a high credit score breaks that trust, there’s hell to pay. Lenders gasp and FICO hits back at the borrower for not being the credit risk they imagined.
How Long Does it Take to Recover a Credit Score?
If your credit score has fallen because of a missed payment or other bad mark on your credit report, you probably don’t care how much FICO scores typically fall. You just want to know how long will it take to recover your credit.
I’m right there with you, or at least I was after destroying my credit score in 2009. After hitting a FICO of 560 during the financial crisis, I didn’t think I would ever be able to get another loan.
It ended up taking me just six months to increase my credit score 100 points through a debt consolidation loan and some of the other tricks I’ll show you later. It took longer to recover my FICO to where it was, nearly two years, and a few years to start seeing my score move to the 800s where it is now.
FICO has also released the table below that shows how long it takes to recover a credit score.
Again, you’ll notice that it takes longer to rebuild a credit score to a higher FICO than if you had started with bad credit in the first place. This makes sense. You’ve got farther to go if you’re talking about rebuilding 280 points rather than 150 on your FICO.
One thing you might have noticed from the tables is that the first mistake is a 30-day late payment on your mortgage. Just being late on your mortgage or any other credit payment won’t necessarily hurt your credit though it will cost you some nasty fees. It isn’t until you’re more than a month late that it gets reported to the credit reporting agencies.
Even after a minor late payment though, it can take three years or more to rebuild your credit and up to 10 years to recover from a bankruptcy. A lot of this is due to the amount of time these bad marks stay on your credit report and affect your score.
Get a short-term loan to avoid late payments – takes less than 5 minutes
How Long to Repair Credit after Bankruptcy?
Filing bankruptcy is the worst thing that can happen to your credit score but sometimes there’s just no other option. It can take from five to 10 years before you recover your FICO score to where it was before.
The time it takes to rebuild your score after bankruptcy will depend on what type of liquidation you file. Chapter 13 bankruptcy, where you agree to pay off some of your debts, only stays on your report for seven years. Chapter 7 bankruptcy, where you completely walk away from your debts, stays on your report for 10 years.
Don’t worry though, you can still repair your credit score even with a bankruptcy on your report. Let’s look at a few other credit mistakes and then I’ll show you some ways to recover your score.
How Long Does it Take to Rebuild Credit after Debt Settlement?
Rebuilding your credit score after debt settlement can be just as difficult, if not worse, than after a bankruptcy. The problem is that debt settlement companies tell you to stop paying your debts while they are negotiating a payoff.
The reasoning is that if you aren’t making any payments on debt, the collection agencies and creditors will be more willing to negotiate a lower settlement.
The debt negotiation process can drag on for two years and all those unpaid accounts will destroy your FICO. Even if you avoid bankruptcy, all those bad marks will stay on your report for years to come.
Instead of paying thousands to a debt settlement company and destroying your credit score even more, you can negotiate your own settlement. Check out this video I did about how to negotiate your debts.
How Long to Recover Credit Score after a Repo?
It can take up to seven years to recover your credit score after a short-sale or foreclosure though it’s not quite as bad for a simple repossession. For something smaller like getting your car repossessed, it will usually take three to five years to rebuild your credit score.
The problem with having a repossession or other credit default is that these loans are usually sold to a collections agent that keeps the account open to collect. That means the defaulted loan will take longer to drop off your credit report and will continue to hurt your FICO.
All this makes it extremely important that you manage those loan defaults by negotiating with creditors. Even if you’re not able to pay the loan off, if you can offer to pay half the amount, your creditors might agree to settle and close the account.
How to Get a Higher Credit Score in 30 Days
As long as it might take to fully recover your credit score, you can increase your FICO score in as little as 30 days. I’m going to share some tricks I used to boost my credit 100 points fast then some longer-term strategies to increase your score.
- Apply for a debt consolidation loan to pay down high-interest credit cards. These are on your report as revolving debt and hurt your score more than other loans.
- If you can’t pay off your credit cards, at least try paying them down to less than 30% of your limit. This will reduce your credit utilization ratio, a big factor for your FICO.
- Negotiate with creditors and debts in collections. Use some of your consolidation loan to pay off the debt if the creditor will agree to remove the missed payment from your credit report.
- Dispute any bad marks on your credit report, especially on accounts that have been closed. Getting just a few of these removed will increase your FICO greatly.
Check your rate on a consolidation loan – won’t affect your credit
Truly rebuilding your credit score will take longer than a month but there are some things you can do to make sure it keeps rising. It took me nearly two years to fully recover my FICO while I learned everything I could about credit and scores.
- Do not apply for any loans within six months of trying to get a large loan. Loan inquiries will decrease your score for up to a year after your application.
- Use your credit cards regularly but only for purchases you can pay off each month. You need to build good credit history but not at the risk of getting deeper in debt.
- If you don’t have a credit card, try getting added to another’s as an ‘authorized user’ so the monthly payments go on your credit report. Building this positive credit history is important to covering up bad marks.
Answering the question, “How long does it take to rebuild credit?” probably isn’t as straight forward as you’d like but maybe you’re asking the wrong question. Your credit is what it is, that’s the fact. Having bad credit sucks but there are things you can do to increase your FICO fast. Spend the time to learn how to increase your score and you’ll be back to getting better rates in no time.
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.