While almost all information stays on your report for seven years, most of it will stop affecting your score sometime before that.
If you have a bad credit score, you’re going to have a lot of trouble taking out personal loans from a traditional lender like a bank or online loan company.
The long-term solution is to improve your credit score, but that’s easier said than done. And before you can improve your score, you first need to first you need to understand why you have bad credit and what you can do to fix it.
And in order to understand your credit score, you first need to understand your credit reports because it’s the information these reports that are leading to your lousy credit score. With good financial behavior, that information will eventually be replaced by better info—and one day it will drop off your score entirely.
But how long does information stay on your credit report? And how long will it affect your score? We reached out to the experts for answers.
Here’s how your credit report works.
Your credit reports are documents that trace your history as a borrower, and information from these reports is used to create your credit score. A common metaphor to describe the relationship between the two is that credit reports are like a test, while credit scores are like the grade you receive on that test.
According to financial coach and author Karen Ford, credit reports provide “a summary of your credit history and certain other information reported to credit bureaus by your lenders and creditors.” These reports are created and compiled by the three major credit bureaus: Experian, TransUnion, and Equifax.
Information that’s recorded in credit reports includes bill payments, amounts owed on loans and credit cards, as well as recent hard credit inquiries. “Bills that will affect your score are credit cards, student loans, mortgage loans, car loans, personal loans,” said Ford. “Bills that won’t affect your score are utilities, rent (if the landlord doesn’t report to the FICO), and medical bills.”
“Of course, if you’re horrendously late with any of these, they may decide to utilize a collection agency. If you get turned into a collection agency, this will affect your credit score,” she added. Bankruptcies and other information available on the public record are also included in your report.
As not all companies report information to all three credit bureaus, your score can actually vary depending on which report was used to create your score. The most common type of credit score is the FICO score, but there are other types of credit scores as well, including VantageScore, which was created by the bureaus themselves.
Your credit reports can also contain incorrect information that could be artificially lowering your score. “One reason to check your credit report is to ensure there isn’t something on there that isn’t accurate,” Ford advised. “There may have been a mistake and a bill unpaid may be on the report, which can adversely affect your credit score.”
Luckily, you can access your credit reports for free! As Ford went on to explain, you’re entitled to one free copy of your report from each bureau every twelve months. You can order a copy of your report online by visiting AnnualCreditReport.com, which Ford emphasized was “the only authorized website for free credit reports.”
Information stays on your report for 7 to 10 years.
If you make a mistake like a late payment, the good news is that it won’t be on your credit report forever. The not-so-good news is that it will be on your report for quite some time—over half a decade.
“Items will stay on your credit report for different periods of time depending on the nature of the information,” said Jacob Dayan,CEO and co-founder of Community Tax, LLC and Finance Pal, LLC. “Many common things like late payments and charge-offs will stay on your report for seven years, while more serious incidents like bankruptcy will stay for up to 10 years.”
Luckily, not all bankruptcies stay on your report for a full decade. According to Jared Weitz, CEO and Founder of United Capital Source Inc, it’s only Chapter 7 bankruptcies that stay on your record for the full 10 years. Chapter 13 bankruptcies, on the other hand, only remain on your report for seven years.
(What’s the difference between Chapter 7 and Chapter 13 bankruptcies? Chapter 13 involves a restructuring of debts and a repayment plan, whereas Chapter 7 involves liquidating your assets in order to pay off what you can and then discharging the rest. For more information, check out our blog post on which debts can—and can’t—be discharged through bankruptcy.)
So if you miss a bill payment on your credit card bill, you have to wait a full seven years before your credit score can rebound? Not necessarily.
“The good news, however, is that these items will carry less weight in your credit score as they become older,” said Dayan. “You can expect your credit score to rebound from the significant hit a bankruptcy will have in around five years.”
Dayan also added that you are free to dispute any items on your credit report as long as you have grounds to do so. For information on that, you can read our post on contesting credit report errors.
How late was that late payment?
Even though a late payment stays on your credit report for seven years, the damage it does to your credit score should fade well before that seven-year mark is up. The difference lies in how late you were in making that payment. The longer that bill sits unpaid, the worse it is for your score.
“Negative actions, such as late payment, will stay on your credit record for seven years, but not all actions are equally as damaging,” explained Weitz. “If you have an isolated event where payment is 30 to 60 days late, this will be less damaging than multiple late payments or a late payment that exceeds 90 days.”
“To view impact to your credit, think of payments in 30-day increments,” Weitz continued. If you have one payment that is 30 days, or 60 days late, this won’t cause lasting damage to your credit. If you are 90 days late your score can be impacted for the entire seven years.
“Since the scoring model is based on the prediction of whether you meet the credit obligations in a 90 day period, exceeding this duration will hurt a creditors trust in you, and thus—lowering your score.”
And if you think that the damage to your score can’t get any worse past 90 days, think again.
“If your delinquency exceeds 120 days, your debt is usually sold to a third-party collection agency and will be filed on your credit score, hurting it further and longer,” said Weitz.
So if you miss a bill payment, don’t throw up your hands and assume that it’s too late to do anything. The longer that bill sits unpaid, the more your score will suffer.
How can you improve your credit?
There are five main categories of information that make up your FICO score. Your payment history makes up 35% of your total score, more than any other single factor—while your amounts owed/credit utilization comes in a close second at 30%.
So if you are looking to improve a bad credit score, these are two areas where you want to focus your efforts. In short: You need to pay your bills on time and you need to pay down your debt.
Ford also recommended measuring your credit utilization ratio, as carrying credit card balances that exceed 30% of your overall limit can have an additional negative impact on your score.
Lastly, Ford pointed out that the length of your credit history and your credit mix also play a part in your score. (In fact, they make up 15% and 10% of your overall credit score, respectively.) While longer credit histories are preferable, Ford asserted that a short credit history can be great as long as you’ve made your payments on time.
Improving your credit score is likely going to take years—especially if the main reason you have poor credit is too many late or missed payments. But the sooner you start working to fix your credit, the sooner you’ll see results, even if it’s still years down the line.
Jacob Dayan is the CEO and Co-Founder of Community Tax, LLC (@communitytaxllc) and Finance Pal, LLC. He began his career in Wall Street New York at Bear Stearns working in the Financial Analytics and Structured Transactions group. He continued to work in Wall Street until early 2009. When he then left New York and returned to Chicago to be with his family and pursue his lifelong dream of self-employment. There he co-founded Community Tax, LLC followed by Finance Pal in late 2018.
Karen Ford is a Master Financial Coach, Public Speaker, Entrepreneur, and Best- Selling Author. Her #1 Amazon Best Selling Book “Money Matters” is a discovery for many. In “Money Matters” she provides keys to demolishing debt, shares how to budget correctly, and gives principles in wealth building.
Jared Weitz (@jaredweitz) has been in the financial services industry for over 10 years. Due to his extensive work experience and deep network of close financial relationships, he handles a multitude of different finance options for his clients and contacts. Over the years, he has held positions in some of the largest business financing companies in the U.S. Some of his roles have been: Underwriter, Director of Business Development, Managing Partner and currently, CEO of United Capital Source, LLC.
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The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.