A credit score below 600 is referred to as poor credit and therefore, the probability of qualifying for loans credit cards, and other forms of credit is very slim. In case, your score is in the range of 500, improving the score up to 700 or 200 points can make a dramatic difference in credit access. But increase your score by that much, it will take time and effort to credit reconstruction. I outlined some general observations as to how long it may take one to transition from 500 to 700 and the keys to boosting the credit score above.
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For your information, everybody’s financial position is different and normally, it will take about 1 to 2 years to bring up the score from 500 into the 600 – 700 range. A few can achieve it within a year, but others take longer to reach that milestone, as they work to establish a credit history of good credit usage after past poor performances.
The amount of points which is usually raised in the first year is in the range of 80-100 points. So after a year of working, and starting with a score of 500, what is possible is to be around 600. Then in the second year, you may witness another 70- 100 point increase bringing you close to a score of 700.
However, one can potentially achieve an even higher score increase initially, based on the specifics of their credit history. For instance, if you have simple mistakes that can be easily pointed out, your score will likely rise within a short period. However, it is often the case that impressive point gains can only be achieved gradually and through much tenacity. Aim for a period of credit repair ranging between 12 months and 24 months of consistent effort to achieve the 700 credit score.
Some of the most important measures on how to raise your credit score by 200 points.
As we have noted, achieving a 200-point increase on a 500 credit score is not an easy feat but it is easily achievable if one can devote enough time towards the activity. Here are key steps to focus on:
1. Check credit reports and disputation of wrong information - Ensure you obtain your free credit reports from Equifax, Experian, and Transunion to verify all negative items reported. If you have detected errors such as identity theft, or when you noticed that some accounts are not yours, or payments have been reported wrongly, you need to initiate a dispute with each bureau to get the correction or deletion done. Correcting reporting errors will give an instant score high.
2. Decrease balances below 30% – As we have mentioned before, the credit utilization ratio which is the amount of money that is owed versus the amount of credit that is available contributes greatly to credit scores. Major credit score penalties can be incurred if a card balance is over 30% of the limit; hence, it is essential to strive and ensure all card balances are below this percentage. Paying off installment loan balances also helps as it also reduces the average of the balance of all credit cards/open credit which increases the mix of credit types on the reports.
3. Get a secured credit card - Go to your local bank and request a secured credit card; this is a credit card where you will have to pay a security deposit for the amount you want to utilize on the card. Their good pay record is reported to your reports, and this works like a charm, counteracting the negative entries.
4. Get secured credit cards or credit builder loans – Because issuers are reluctant to grant applicants unsecured credit with a low rating, applicants should seek secured credit that involves paying a cash deposit upfront. Getting secured cards or credit builder loans and then using them responsibly for 6-12 months ensures that the credit check shows reliable payment but without the high fees or interest rates found in bad credit cards.
5. Minimalists in new credit applications – each application is an initiation of a hard inquiry that can pull down the scores for a while. Do not go opening many new credit accounts as you rebuild so that you do not slow down the process through too many hard pulls temporarily lowering your score. Allow at least six months between the last dose of the previous application and the first dose of the new one.
6. Pay off the card balances - keep them below 20% - Once you have achieved these benchmarks, you should ensure they clear the balances in full or at worst keep them low. Allowing balances to keep on reporting at 30 percent or more on a limit will lead to further score deterioration. One thing to remain conscious of as re-establishing credit is to be cautious about low credit utilization.
7. Practice – Over time, apply for new credit cautiously and at times establish the different kinds of credit like installment loans and revolving credit. It is advisable to have both types of credits in the reports with a good number of years of credit history exceeding 3+ years.
8. Make payments on collection or charge-off accounts – This is a special way of managing accounts that would have fallen into collections or charge-off status, bringing them back into order also helps to boost your credit scores. Pay off collections with a payoff or pay the credit card company to remove the debt when negotiating. Lacking 180 days, they do not update charge-off accounts any longer. Paying them then will not increase the scores if you cannot negotiate with the lender regarding the removal of the negative status for an amount.
9. Reevaluate quarterly – The progress one makes towards fixing credit requires constant tracking; people should review score reports from credit tracking sites such as Credit Karma every quarter. You should see an upward score movement on a month-to-month basis as you continue to work on your credit reconstruction process. Any such dips notify us to look for a reporting error or a regressive financial behavior that is emerging that is unhealthy and needs correction.
Building up the credit health is a lifelong process but it gives you enormous opportunities, and convenience and can even save you some money in terms of financing costs if your scores are in the better categories. If you are willing to get to or go beyond the 700-point mark from the current 500, then you just have to be constant and steadfast. If those desiring to ascend the credit wellness ladder have a consistent practice of the habits practiced over 18-24 months, then it would be possible to earn a 200-point score increase.
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