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Having bad credit is not the end of the world, if you are prepared to improve it. Believe it or not that’s the first step, being prepared is having the willingness to work on it. A lot of people often wonder how long it will take rebuild their credit but that is something even experts cannot answer due to it varies file by file. Don’t get down, I will give you some important tips to assisting you with the progress. 

Are you all ready? Well here we go!

What impacts your credit score? 

This is the perfect place to start with helping you fix your credit, because many Americans do not know or understand what impacts their credit. 

  • Payment History determines 35% of your credit score. You paying your bills on-time affects your credit score more than any other factor. Payment issues, like charge-offs, collections, bankruptcy, repossessions, tax liens and foreclosures can destroy your credit.  To help your credit make your payments on time each month.
  • Capacity/Credit Utilization determines 30% of your credit score.  It’s the ratio of your outstanding credit cards balances to your card limits. Credit Utilization measures the amount one is using of their available credit. For instance, if you have a balance on a credit card of $300 and the limit on the card is $1,000 that makes your credit utilization for that particular card 30%. 

If you are charging $500 on a card and your limit is $1,000 your utilization rate will be 50%.

Here is how to calculate your credit utilization rate, divide your credit card balance by the credit limit, then multiply by 100. The lower the percentage the better.   

  • Length/Age of Credit determines 15% of your credit score and considers the age of your oldest account and the average age of all your accounts. By having older accounts is better for your score because it shows you have experience in handling credit. Any time you open a new accounts or close existing accounts it can lower the age of your credit file. 
  • Mix of Credit has two types of credit accounts: Revolving accounts and installment loans. Having a mixture of both is better for your score because it indicates your experience in handling different types of credit. 

If you have a different types of assets such as a car or home loan, with a couple credit cards and a student or personal loan can really help your score. The mix of credit only counts for 10% so it will not hurt your score if you do not have one of these loans.

  • Number of Credit Inquires Each time you apply for anything that requires a credit check, an inquiry will be place on your credit report. Inquires makes up 10% of your credit score. Keep your credit applications to a minimum. Filling out for too many inquires within a short period can hurt your credit score. 

After 12 months of an inquiry it affects your score and they will disappear form the credit file after 24 months. 

These five components is significant to rebuilding your credit score. 

Identify the Problem 

If you are experiencing bad credit, don’t be discouraged—there might be some areas you can improve to reach your goals. One way to start is by requesting a free copy of your credit report and look for things that could use improvement. Such as, if you have credit cards that’s open and have a high balance, consider paying off your card(s) with the highest balance and interest rates.  By doing so it lowers your utilization rate, in which it will help in improving your score. However, continue making the minimum payments on other cards to continue your on time payment history which is 35% of credit score. 

So now you understand the factors in making your score, identified the problem(s) by obtaining your credit reports now it’s time to rebuild your credit.