Most homebuyers are aware that the higher their credit score is, the more chance they have of obtaining a lower mortgage rate on their home. But maintaining a high credit score isn’t easy, as a single missed payment can quickly cause it to come tumbling down.
“Depending on your credit history, a 15- or 20-point shift could mean the difference between being approved or declined or better terms or higher costs,” Rod Griffin, the director of public education at Experian, told CNBC.
It’s easy to damage a credit rating, but not many people are aware of how to fix things, which is also surprisingly simple – all it takes is to pay your bills on time and reduce your credit card balance as much as possible. Do that and your credit score could improve within just a few months, experts say.
“As a rule of thumb, you could see an appreciable difference in six months,” Ted Rossman, an industry analyst at CreditCards.com, told CNBC. But, “if a missed payment has dragged your score down, your score could rebound in a month or two; a series of late payments will take longer to make a full recovery,” Griffin added.
It takes around 9 months for a credit score to recover from a single late mortgage payment, and up to 10 years for someone who has filed for bankruptcy.
Even so, a person’s overall credit history also goes some way towards dictating how fast they can recover from any financial mishap. Griffin told CNBC that those with a good credit rating to start with will improve their score far faster than someone who’s starting out with an already low score.
Conversely, a lower credit score reflects a pattern of missed payments so one more missed payment wouldn’t have much of an impact. But a person with a clean credit report who misses a payment will see a bigger impact, Miron Lulic, founder and CEO of SuperMoney, told CNBC.
However, most borrowers don’t need a perfect score. Instead, Griffin said “the goal is to have a score that qualifies you for the best terms of rates, generally 750 or above.”
Overall, credit scores recently have been at an all-time high, according to FICO. FICO credit scores range from 300 to 850.