When do things fall off your credit report? All kinds of information is reported in your credit profile. How long they stay on your report depends on their importance. For example, a major financial move like defaulting on a loan will remain on your credit report much longer than a single missed payment.
Here, you will learn all about credit scores, how they work, and how your financial decisions can affect your overall score!
How Do Credit Scores Work?
Your credit score is a three-digit number that indicates your general creditworthiness to lenders and financial institutions. If you are looking for loans or other financial products, it is helpful to have a credit score on the higher side.
Thanks to the Fair Credit Reporting Act, consumers have a right to a free credit report from each major credit bureau every year. It may be a good idea to review your credit reports and credit score often to stay familiar with your current financial standing.
How Long Does Negative Information Stay On Your Credit Reports?
Some potential negative marks you may see reported on your credit profile are:
- Missed or late payments.
- Accounts created with a Debt collection agency.
- Repossession of cars or other property.
- Foreclosures on homes or other properties.
- Bankruptcies, like chapter 13 or chapter 7 bankruptcy.
Typically, negative marks can stay on your credit report for seven to ten years, depending on the severity.
Late or Missed Payments
A late payment occurs when a borrower makes an installment after the payment’s designated due date. Late payments remain on your credit report for anywhere from 30 days to several years. The longer you let a late payment go unresolved, the longer it will affect your credit.
Sometimes, lenders have a grace period where borrowers can make payments a few days after their due date without any negative consequences. Or, other lenders have terms that allow a borrower to rectify their first missed payment without penalty. If you have accidentally missed a payment due date, talk to your lender to see if you can take advantage of any of these perks and prevent your credit from dropping.
A missed payment occurs when a borrower fails to make a loan installment altogether. Unfortunately, missed payments that go unrectified may be turned over to a debt collector, resulting in a collections account.
Collection Accounts
Collection agencies are a type of financial institution that purchases delinquent accounts from creditors. While dealing with debt collectors may seem stressful, it’s best to work with them so you can work towards having your collection account paid off and eventually closed.
Collections can affect credit scores quite a bit since they directly result from multiple missed payments. However, you should see an improvement in your credit once you pay off collections.
Something important to note is that medical debt and medical collection accounts cannot go on your credit report. So, if you see details of any unpaid debt from a medical facility on your credit report, file a dispute so you can have that information removed from your profile!
Repossession
When borrowers put up collateral to secure a loan and then fail to pay back their balance, lenders may have the right to repossess whatever property they used as collateral. This often happens to borrowers who take out secured loans that come with unreasonable rates and inconvenient terms. Repossession can stay on a credit report for up to a seven-year period.
Foreclosures
Foreclosure usually happens to people who default on home loans, property loans, or mortgages. Similar to repossession, foreclosure can also stay on credit reports for approximately seven years.
Bankruptcy
Bankruptcy is a serious financial decision that can stay with you for over a decade. If you are drowning in debt and have absolutely no way to pay back your balances, you may want to consider bankruptcy as a last resort.
Two of the most common types of personal bankruptcies are chapter 7 and chapter 13 bankruptcy. Chapter 13 bankruptcy is often called the “liquidation bankruptcy” and may stay on your credit report for up to seven years. When a consumer files for chapter 13 bankruptcy, that typically means they are selling some or all of their properties and assets in order to pay off their debts. Chapter 7 bankruptcy is often referred to as the “reorganization bankruptcy” and may stay on credit reports for up to ten years. When filing chapter 7 bankruptcy, the consumer may keep their property/assets if they successfully adhere to a court ordered repayment schedule. This repayment plan can last for approximately three to five years.
Fortunately, you should see an improvement in your credit score once bankruptcy falls off.
How Long Does Positive Information Stay On Your Credit Report?
Positive information, such as timely payments and low debt, affect your credit report just as much as negative information. Focusing on filling your credit report with positive information will help you see the most significant improvement in your credit over time.
Active Financial Accounts Receiving Timely Payments
Paying credit card balances, loan installments, and other financial commitments on time has perhaps the largest impact on your overall credit score. With active financial accounts, lenders should continuously report on your payment history and progress to credit bureaus. Meaning the account will remain on your credit score for as long as the account is active.
Furthermore, when you pay back loans and credit cards according to the terms laid out in your original contract, that shows lenders you take your financial obligations seriously and are therefore a low risk of defaulting.
Some tips for always making on-time payments are:
- Sign up for autopay.
- Opt for payment reminders.
- Make more than one full payment each month.
Closed Accounts Paid off According To Contract Terms
Paid-off loans can affect your credit report long after you’ve made your final installment. Borrowers who pay off their loans may see the account reported on in their credit profile for up to ten years after making their final payment.
What Else Do Credit Bureaus Report On?
Your credit score is essentially broken down into five major categories.
Payment History
The most important factor contributing to your credit score is your payment history. In order to have a decent credit score, it is vital that you have a relatively clean payment history. That means you make your payments on your loans and bills on or before the due date.
Credit Mix
Your credit mix is the variety you have in your credit accounts. Some different financial accounts that would contribute to your credit mix are:
- Checking accounts.
- Savings accounts.
- Loans.
- Mortgages.
Debt vs. Income
Your debt-to-income ratio refers to how much debt you have compared to how much your income is. Generally, lenders like to see that a consumer makes more money than they owe.
Credit History Timeline
Your credit history timeline refers to how long you have had open and active financial accounts. Having active financial accounts shows that you have experience handling your own finances.
Hard Credit Checks / Hard Inquiries
Have you ever wondered why does your credit score go down when it is checked? When lenders request official records of your credit report, they perform what is known as a hard credit inquiry. Many credit requests within a short time, especially if those requests are not approved, may indicate to lenders that you are a reckless and possibly irresponsible borrower.
Therefore, as a consequence of applying for new credit too many times, you may see a dip in your credit score after applying for multiple loans or financial products. To protect your score, only apply for new credit when it is absolutely necessary.
How To Improve Bad Credit Scores
If you are suffering from a poor credit score, it’s time to come up with a plan to fix it! Below are some tips on things you can do to improve your credit score.
Quick Fixes for Your Credit Report
There are things you can do now that may help you see an improvement in your credit the next time you check your score.
Focus on Paying Off Debt
Lenders and credit bureaus care about how much debt consumers have. The more debt someone has accumulated, the more their credit report will suffer. The less debt you have, the more your score will benefit! As you chip away at your debt and pay off your balances, you should start to see an increase in your credit score over time.
Check Your Report Often and Report Errors
When it comes to official copies of your credit report, everyone is entitled to at least one free copy of their credit report each year from the major credit reporting agencies. However, consumers can get an unofficial record of their credit report at any time with most banks or financial institutions.
When trying to maintain good credit and keep your score in good standing, it is important to review your credit report often. Staying familiar with your financial habits allows you to see how your behavior directly affects your credit. Furthermore, checking your report often will make it easier to spot inconsistencies and correct any errors you see on your credit report.
Long-term Plans To Improve Your Credit Report
You won’t be able to transform your credit overnight. But, by focusing on maintaining healthy financial habits, you should start to see a rise in your credit score in a few months. Below are some tips on how you can boost your credit.
Keep Your Credit Utilization At 30%
Your credit utilization is how much of your available credit you are using compared to how much you have in general. Ideally, you would keep your available credit high and your credit usage low, but this isn’t always possible. To see the most improvement in your credit over time, try to keep your usage no higher than 30%.
Do Research On Creditors Before Applying For Loans
Set yourself up for success by doing your own research on lenders before filling out a loan or credit application. That way, you can avoid predatory lending scams like instant online payday loans.
References:
How Long Does Information Stay on my Equifax Credit Report
What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy? – Experian
