How long does it take to improve your credit score?

A good credit score is an essential building block for your financial future. A strong credit score indicates to others you’re a trustworthy borrower, a reliable renter, and gives you access to a number of financial benefits

Several factors combine to determine your score, including your debt-to-income ratio, your credit history (in terms of timely payments and amounts owed), and available credit types between credit cards, credit lines, and loans. If you have what’s considered a poor credit score, it’s entirely possible to improve it if you commit to the process, although it will take time–anywhere from six months to several years.

What is a credit score?

According to the Consumer Financial Credit Bureau, “a credit score is a prediction of your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports.” 

A credit score is a three-digit number( ranging from 300 to 850) comprised of several factors, including your payment history and accounts owned, and is often used to predict your credit behavior. It can provide a glimpse into your credit health and ability to pay back debts, and companies often use this score to determine if they'll give you a loan, or mortgage, or issue a credit card. Landlords and property managers will use an applicant’s credit scores to decide whether or not to approve your rental application.

What is a good credit score?

A good credit score in the upper-600s or higher is considered “good” while anything above 800 is considered “exceptional”. Factors that contribute to your score include:

• Total amount of debt
• Monthly payments
• Total available credit
• Length of your credit history
• Types of accounts
• How long your accounts have been open

Your credit score measures how dependable you are as a borrower and your level of risk. The higher your credit score, the more benefits you can enjoy such as approval for and a lower your interest rates for a loan. A high credit score can also help a landlord determine how responsible you will be as a tenant. Having a good credit score can be challenging for many people, especially if you have a history of credit card debt or other financial troubles. However, there are several things that you can do to improve your credit and turn your score from “poor” to “very good”, which we’ll cover below.  

Why do I need a good credit score?

In addition to the financial benefits we discussed earlier, a good credit score can help you unlock the following:

• Lower interest rates on loans, including a mortgage 
• Lower monthly payments on loans
• New credit accounts/cards 
• Less expensive auto insurance premiums 
• Tenancy in a rental property

While you can survive with a poor credit score, there are numerous benefits and opportunities that only come with a strong credit score. Today’s economy runs on credit, and everyone from landlords to insurers will be looking at your credit score to determine if they should do business with you or not.

How long does it take to build up your credit?

The time it takes to improve your credit score varies based on how much available credit you currently have, as well as the type of open credit accounts such as credit cards, loans, and bank credit lines. 

Building up your score can take a few years if you are a more recent credit user with just a few accounts. If you have a longer credit history, especially one that includes a mortgage, you may be able to improve your score in as little as 12 months.

How are credit scores measured based on FICO and Vantage scores?

FICO scores

Your Fair Isaac Company (FICO®) score, which is the same thing as a credit score, ranges between 300 and 850. A FICO score of 300 is considered low, while a score of 850 is considered perfect credit. The factors that determine your FICO score are based on credit utilization. For example: do you use your credit lines and pay them back regularly if you have lines open? In order to get a reasonable interest rate on a credit card, mortgage, or any other type of loan, you’ll need a FICO score between 620 to 700. A FICO score of 690 and above reflects a payment history with no missed or late payments and little or no new debt less than a couple of months old.

VantageScore

Your VantageScore® takes into account your payments, if you’re paying on time or late and is focused on creditworthiness. The credit score range is the same as the FICO score, 300 to 850. You need a good enough (620 to 700) VantageScore to secure a reasonable interest rate on an auto loan, credit card, or mortgage. The VantageScores are mainly used by landlords, lenders, and financial institutions.

Both types of scores can help a landlord determine how responsible you are at paying back your bills and if they can depend on you to pay rent in a timely manner. Below, we’ve outlined a few steps you can take to begin increasing your credit score and developing good credit habits to sustain your score for the long run.

3 steps to improve your credit score

Depending on your lifestyle and financial history, you may need anywhere from 12 months to a few years to work through these stages. Even if you have a good credit score, you can still improve it and unlock even more benefits when you apply for a loan (or a new apartment) in the future. Before we dive into the three things you can do to improve your score, here are the two most important factors that influence your score to keep in mind: 

1) How long your accounts have been open: The older your accounts are, the better. An account is considered “older” when it has been 18.9 years since it was opened. The average age of a credit account is about eight years. The older your account, the more secured and verified information you can provide, like your employment and income. 

2) The types of accounts you have: The fewer accounts you have, the better. Ideally, you should only have one account or one account with one creditor.

1. Keep on top of your finances

If you want to improve your credit score, the most important thing you can do is keep up with your financial obligations. Stay up to date with your payments and make at least a minimum payment on time every time. An occasional late payment will not affect your score too much, but several late payments over a few months will hurt your score. 

Ideally, you want to pay off credit card balances every month and do your best to keep other account balances as low as possible to improve your credit score.

2. Establish an identity

Building a positive identity through your actual name (not a nickname), address, and identification can positively contribute toward your credit score. Consider using your name as your username on social media sites and sign your full name on important documents like rental agreements. With consistent use of your full name on credit lines, you’ll get credit for all transactions that can help you build credit and eliminate gaps in your history if you’ve used a slightly different name.

3. Establish credit in responsible ways

When applying for a credit card, auto loan, personal loan or line of credit,  look for reputable lenders who will accurately report your account information and payment history.

Renters should ensure their monthly rental payments are reported to the credit bureaus. Ask your landlord if they participate in a rent reporting program and, if they don't, you can sign up for an online rent reporting service that will report your rent payments. If you can demonstrate a positive rental history for six months or more, this will help build your credit. Some reporting services will also capture past rent payments as part of what they report to the credit bureaus, and this rental history will appear on your credit report.

Most rent reporting services claim you will see a boost in your credit score within a few weeks to a few months. Some even offer to send in two months of payment records right after you sign up to help you start in a strong position. 

Improve your credit score with a rent reporting service

Paying your rent alone won’t build your credit, but reporting those payments to the credit bureaus can. With the help of a rent reporting service, you can ensure your rent payments are accurately reflected in your credit reports. Look for services that will protect your personal data, explain what information will show up on your credit report, and clearly state which credit bureaus they report to. 

While paying your rent on time and in full can help you build your credit, it’s far from the only option at your disposal. With a consistent financial routine, in addition to a rent reporting service, you can build up your credit score from just good to great.