How much and how fast will my credit score improve?

Question

Here's the background info:

Came to the US in mid-2001, opened my first credit account shortly thereafter.

Everything was going great, making ontime payments, keeping my balance low, until mid-2004 when I hit a bump on the road, which resulted in several late payments on several accounts, a couple as late as 60, 90 days.

Picked myself up a bit, but have been only able to make minimum payments. Cards are maxed out, which is the reason for my score of 580, I guess.

Have about 4K in credit card debt, which I am planning to pay down completely within the next 3 months.

How much and how fast can I expect my score to increase? When will it reach a respectable level assuming everything goes well from now on?

Thanks in advance.

I'm asking because I want buy a house.

I have no accounts in collection.

All my accounts are open and current, but just very near the credit limit.

I have been making on time but minimum payments for the past several years.

Answer 1

First, do NOT close those accounts after you pay them down. Closing an account can hurt your score, and closing an account can never improve your score. You are correct that max-ing out credit cards hurts your score. This concept, called credit utilization, is worth 30% of your FICO score. Second, if any of those maxed accounts are your oldest open accounts, closing them will damage another 10% of your score, which is age of oldest open accounts. Third, if you close all your open credit cards, you'll hurt another 10% of your score: credit mix. Fourth, how fast can you improve your score? As soon as your payment clears the creditor and the creditor reports the new balance to the CRA. The creditor usually reports monthly. A credit score is a snapshot in time of the latest info available to the CRA. Check your credit report for errors, identity theft, derogatory accounts (other than Ch 7 BK) that are over 7 years old, and make sure the creditors are still reporting your good, on-time accounts. After 2 years, the effect on your credit score of a late payment on your credit report drops considerably. I've read of people having scores in the 700s about two years after discharging a bankruptcy, and you're in much better shape. Did this help?

Answer 2

This is going to take some work on your part but very doable.

First, I would not advise paying off your debt completely in 3 months.

If your goal is to raise your Credit Score, the FICO system takes into account how you manage your 'on time payments'. If you pay your accounts completely in 3 months, it does not allow enough time and information for the FICO sytem to evaluate your 'ability to pay'.

Rather, arrange with the creditors in writing to re-instate your accounts. Meaning that if they agree to list your accounts as 'current' and report it as such to all three credit bureaus, you will agree to re-start your payments.

If your accounts are with a collection agency, make certain that the original creditor agrees to these terms in writing as well.

Put the additional money that you were to have in 3 months to pay your accounts in full into a high interest bearing savings account or money market account.

Once you see that your credit score is improving, 6 to 12 months down the line, then consider paying off certain creditors.

The Credit Score is dependent on your outstanding credit amounts and your monthly consistent payments. If you have no creditors to pay, you have no monthly payments to make and the Credit Score (FICO) has nothing to assess its rating.

Answer 3

If you can pay off $4000 in 3 months, keep it up for another 6 months and build up a cash emergency fund. When you pay off your debt, you can use the money that no longer goes to payments to live on. Then you don't need credit and you score doesn't matter.