Most car shoppers know their credit score is important for getting a good car loan interest rate and a low score can be a roadblock for loan approval. For many borrowers, the nature of credit score fluctuations still remains a bit of a mystery and factors that can cause a credit score to drop and to bounce back are  often misunderstood. A common question we encounter is "how long will it take for my credit score to rebound after it has taken a hit?" We’ll cover how various actions will impact your credit score and how long it typically takes for it to recover.

Reasons Your Credit Score Drops 

Applying for Bankruptcy

A common misunderstanding about credit scores is that a drastic event like a bankruptcy or overdue payment needs to occur for a credit score to be affected. In reality, everything from a new credit application to closing a credit account can send your credit score southbound. The top reasons your credit may fall can include any of the following: a recent credit application, closing an old account, spending more than normal, being over 30 days past due on payment, lacking account diversity, credit bureaus errors, identity theft and derogatory marks like bankruptcy.

Some of these actions will have a low impact on your score such as applying for credit, closing an old account and lacking account diversity. The rest of these actions can range between having a medium to severe impact on credit. Bankruptcy, identity theft and having your account sent to collections will be the most worrisome for your credit score. If you check your credit score regularly and spot a downward pattern without having knowingly taken the actions we listed, you should look for credit bureau errors or for signs of identity theft.

How Long Does It Take to Rebound?

Credit Score Approved

To anticipate the amount of time it'll take for your credit score to bounce back you should look at two factors: the reason for the drop and your starting credit score. Some actions like applying for a car loan will only ding your score by a point or two. Then there are events that cause a more significant change to your score and will take longer to remedy. Having a higher starting credit score means it will take longer for it to recover after a major setback. 

credit score chart(image: VantageScore)

Reason for the Drop 

The average time it takes to recover your good credit score after a dip will largely depend on the reason it was affected in the first place. VantageScore offers a guide for estimating the average time it will take to restore a credit score after it has been impacted by everything from applying for credit to bankruptcy.

  • Bankruptcy: Significant impact on your credit and will take the longest to remedy your score, usually between 7 to 10 years. 
  • Missed payments or default: Significant impact on credit, and takes 18 months on average to bounce back.
  • Maxed out credit card: Moderate effect on credit, can take 3 months to repair.
  • Closing an account: Minor impact on credit, can take 3 months to repair.
  • Applying for credit: Minor impact on credit, can take 3 months to repair.

 Starting Credit Score

In addition to the actions that cause a credit score to fall, your starting credit score will determine how long it takes to get it back up. Since a higher score has farther to fall, it will also take longer to bounce back. As an example, FICO estimated the time it would take two customers with two unique scores to recover from a bankruptcy. A customer with a credit score of 680 will wait an average of 5 years to see their credit score recover while a customer with a credit score of 720 will wait 7-10 years.

Fastest Ways to Raise Your Score

Paying off credit cards
Pay off your credit card balances and your credit score will thank you.

While most strategies to improve your credit score will take several months or even years of good habits and patience, there are a couple of shortcuts that can improve your score more quickly. If you're applying for a car loan and you're looking for a quick boost to your credit, you should be especially vigilant for issues like errors on your report. Make sure you carefully look over the report and dispute anything that looks incorrect.

Another way to expedite a higher credit score is to improve your credit utilization. Credit utilization looks at how much of your available credit you use. For example, if your credit limit is $5,000 and you charge $2,500 every month, your utilization is 50%. A good rule of thumb is to keep your credit utilization under 30%. You can take action now by paying down large credit card balances or getting an increase in your credit limit to improve your score. 

Should You Wait for a Better Score to Buy a Car?

Man buying a car

When it comes to getting a car loan, having good credit allows you to get a lower interest rate and better loan terms. This can save you hundreds or even thousands of dollars over the course of the loan. That's why it's important to monitor your credit score, keep up with your payments and keep your credit utilization within the recommended range. If you're able to, you should wait to bring your credit score up before going to buy a car, but if the car purchase can't wait make sure you understand how getting a car loan with bad credit will work for you. 

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