Clear My Credit Score

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READER QUESTION

How long will it take to improve my credit score if I paid the total of my loans?

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Bills.com Resident Expert
Jan 24, 2012
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BILL'S ANSWER

The question, "If I take action X, how much will it impact my credit score and when?" is one I receive often. The short, accurate answer is, "It depends."

A credit record is an imperfect snapshot of a person's credit history that is 60-90 days out of date. The soonest that any change can be reflected in a credit score is 60-90 days.

This is not to say that taking X action will improve your score Y points in 60-90 days. How much a credit score changes is reflection of the consumer's activities in the account in question, plus all of the other accounts (called trade lines) the consumer has. A person with many strong trade lines will see their credit score recover faster after a setback than a person with one. A person with a foreclosure or repossession will see a deeper and longer harm to their score than a person with one delinquent trade line.

I realize I have not answered your question directly. It is impossible to give a simple answer without knowing more about the consumer's complete credit history.

Clearing Your Credit Score

There are several steps you can take to help improve your credit rating, but building and maintaining a good credit score requires diligent effort and a long-term commitment to financially sound living. It's important to understand that everything remains on your credit report for up to 7 years, and a bankruptcy remains for up to 10 years. Bills.com has a great article about understanding you credit score, for you to learn more.

Step 1: Obtain a copy of your credit report.

First, obtain a copy of your credit report from each of the three major credit bureaus: Experian, Equifax, and TransUnion. You can request no-cost, no-gimmick copies of your reports by visiting AnnualCreditReport.com.

Once you have received copies of your reports, you should carefully review them to make sure that all listings, especially the listings appearing in the "derogatory" category, belong to you and are being reported accurately. Credit reports are notoriously inaccurate, with consumers frequently finding listings of derogatory accounts that never belonged to them or that were paid off years ago.

Dispute any inaccurate listings with the appropriate credit bureau. See the Federal Trade Commission document FTC Facts for Consumers: How to Dispute Credit Report Errors for more information.

Clearing up inaccurate derogatory accounts may improve your credit score significantly, depending on the number of inaccurate listings you find on your reports.

Step 2: Pay off items.

Next, you should try to pay off any derogatory items that legitimately belong to you. While paying off these accounts will not make them fall of your report, it should improve your credit by reducing the amount of delinquent debt reporting to the bureaus and preventing the accounts from continuing to be reported as delinquent.

Once you have dealt with you derogatory accounts, you should begin paying down your other accounts, to reduce your debt to available credit ratio. You can safely carry some debt, but carrying too much debt month to month demonstrates that you are financially strapped, and should not be extended more credit. Ideally, your ratio of debt to available credit should be no more than 33%.

Step 3: Build your credit.

Finally, if you do not already have a long, positive credit history, you should begin to build one. You can start by opening a few small credit card accounts, making charges on them, and paying off most, if not all, of the balances each month. By doing this, you will show yourself to be a responsible user of credit, and your credit score should improve with each month you continue to show a positive payment history. If you find that you cannot obtain a traditional credit card because of credit problems, a secured credit card, in which you deposit cash in an account as collateral for the credit line, can help build a positive credit history.

How to calculate your credit score

Your credit rating is calculated based on several variables, including your payment history (do you have any late payments, charge-offs, etc.), the amount and type of debt that you owe, if you have maxed out any of your trade lines, and then several other secondary factors like the length of your credit history and how many recent inquiries have been made to look at your credit history. Since your past payment history accounts for approximately 35% of your FICO credit score, establishing and maintaining a  good payment history with your creditors is essential to building and preserving a good credit rating.

To learn more about credit and strategies to improve your credit score, I encourage you to visit the Bills.com Credit Solutions and Resources page.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

Comments (25)


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Travis S.
White House, TN  |  January 24, 2012
I have one item on my credit report and it is in collections due to certain reasons, they have offered me a settlement, what should I do. I can pay the settlement, but how will this affect my credit they have not said how it would be treated on my credit. Should I just go ahead and pay it? Also since it is the only thing on my credit how much will it hurt or help me to do so?
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Bills.com
January 24, 2012
It is impossible to for a person who has not seen your credit report to answer your question. I have two reading assignments for you:
  1. Read Short Sale, Foreclosure & Your Credit Score to learn how different events impact a person with low, medium, and high credit scores.
  2. Read Pay For Delete, which is an excellent tactic for reducing the impact a derogatory has on your credit score

If you do not have experience in this area, read Debt Negotiation to learn tips and techniques to reach a successful conclusion.

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Karen M.
Thomson, GA  |  August 26, 2011
Where do you get a copy of "How To Get All Bad Credit Removed From Your Credit Report"? Thanks
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Bills.com
August 26, 2011
I am not sure to what you are referring. I suppose you can check online or at a library.
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Thomas M.
July 24, 2010
There is a legal way to force all 3 credit bureaus to remove all bad credit items from your credit report and it is explained in a free guide titled: "How To Get All Bad Credit Removed From Your Credit Report". Best of luck!
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Bills.com
June 04, 2010
Your question, "If I take action X, what will the impact be on my credit score?" is one I hear often. A credit report is an imperfect snapshot of your credit history that is always 60 to 90 days out of date. When you will see a change to your credit score depends on many variables, including your paying one debt. See Charge-Off Effect on Credit Report for a discussion of the main issue in your question.
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Martin .
June 03, 2010
I just paid off a big bill on my credit, how long does it take to show on my credit report and how much will my score increased because that was the only major bill I had that needed to be paid off and I did...
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Bills.com
March 18, 2010
Wyatt, the best course of action is to resolve your debts either through paying them off, settling them for a discount, or enrolling in a debt relief or credit counseling program. I'd recommend you check out See What Are My Debt Consolidation Options? to gain an understanding of the paths to debt freedom that are available to you. You can also see Freedom Debt Relief to check out if a debt settlement firm is right for you. Good luck Wyatt and hang in there. Bill
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Wyatt W.
March 17, 2010
I Am So Sick Of Debt Collectors Is There Any Way Possibly You Can Help Me Every Time I Move There Is Something Or Some One I Dont Know About Wanting Money I Am So Tired Of Renting I Just Want To Buy Me A Home That I Can Live The Rest of My Life In And Then I Cant Get No Loans Or Morgates Because There Always Some Stupid Collection Agency Wanting Money That I Dont Have And That I Dont Owe And I Want Rid Of These Collections On My Credit Report Is There Any Way At All You Can Get Rid Of These Collections For Me And Have Them Clear Up My Credit Report?
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Bills.com
March 03, 2010
Regardless of your spouse living with you or not, under some state laws if the spouse created debt that did not benefit the family, the other spouse (you in this case) may not have liability for the debt. In other words, you may have a cause of action against your (ex)-spouse. As I mentioned above, consult with an attorney in your state who has experience in family law to determine a) your liability for the debt, b) whether you have a cause of action against her. Let us say for the sake of argument your state law is against you given the facts in your case. You have options to resolve the debt. See What Are My Debt Consolidation Options? to learn more.
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