How quickly can I raise my score after years of inactivity?

By  |  Published: June 17, 2017

The Credit Guy
Columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.
Ask a question.
'The Credit Guy' archive

Question

Dear Credit Guy
I went to my bank today to get preapproved for a home loan. Due to inactivity on my credit report, all credit agencies could not calculate a credit score.

The last loan I paid off was an auto loan from August 2015. If you were to look at my credit report from August 2015 and beyond, my credit score would have been in the 700s to 800s.

The loan officer I spoke with suggests I get a credit card and build my credit.

If I get a credit card and make one payment, will this raise my credit score into the 700s-800s? If my score won't reach that point, how high would you estimate it could get? How will my previous history affect my credit score? – Jon

Answer

Dear Jon,
I believe your loan officer has given you some good advice, but I also think you may be a little optimistic about how soon you will see a change.

Credit scoring models require several months of payment activity to generate a score, so getting a credit card and making one payment will probably not be sufficient to even generate a score, much less show a score in the 700-800 range. These scores fall into the good-to-excellent range.

Establishing and then maintaining accounts is how the credit scoring models predict your creditworthiness. This is why it is so important to pay your bills on time, every time.

Current versus old activity
Certainly, your previous history will come into play, but that is not nearly as important as what you are doing currently with your accounts. Life happens and circumstances change, making what was done in the past somewhat irrelevant when it comes to securing new debt.

You should certainly apply for a credit card and start using it right away. But keep in mind that new accounts can initially lower your credit score, rather than raising it, due to the impact of every hard inquiry on your credit.

It will probably take a few months of on-time payments for your new account to positively affect your credit score.

  • Once you have your credit card, know what your credit limit is and stay well below that. Credit utilization – the amount you have borrowed compared to your credit limit – is another important factor in credit scoring. The lower you can keep your credit utilization, the better it will be for your score.
  • I suggest that you not carry a balance forward, but pay off the balance every month.
  • Use your card for purchases that you will make anyway, such as groceries or gas.

Keeping a low credit utilization ratio
You can access more of your available credit if you make payments more than once a month. Remember that any time your credit score is accessed, what is seen is what your credit looks like at that moment in time.

If you have a $1,500 credit limit and charge $750 at one time, and your credit is accessed before a payment is made, your utilization will be at 50 percent. This is likely too high and may sink your score. This is true even if you never carry a balance on your credit card.

But if you charge $750 at one time and immediately make a payment, you won’t have this problem. An added benefit to this strategy is that you will never find yourself in credit card debt and are living within your means.

This is best for both your credit score and for your overall financial health.

 

Video: How payment history affects your credit score

Consistency and patience
You will need to use the card every month in order to gain the benefits of building your score. You will also need to give yourself some time to get to the place you want to be in terms of your credit score.

I cannot say for sure what score you will have after using the card for six months or so, but I do believe you can get there with careful use of your card and some patience.

Once you have achieved your goal of qualifying for a home mortgage, I would suggest you keep your card open and continue to use it as outlined above.

This will demonstrate a responsible use of credit and allow your score to continue to rise over time.

Take care of your credit!

See related: 5 steps to a mortgage-ready credit profile, Rebuilding credit? Go easy on new accounts

Meet CreditCards.com's reader Q&A experts

Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.

 

 


Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.




Updated: 10-23-2017

Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.


ADVERTISEMENT