How Long Does It Take to Clear Bad Credit History?
In these turbulent times, anyone can fall victim to poor credit scores. Sudden life changes, illness, death of a loved one, divorce, job loss – all of this can impact your credit reports. Other reasons are out of your control. You may have been a victim of fraud, identity theft, or affected by an error made by a collection agency or lender. Methods exist to rebuild your credit, but the question remains – how long does it take to clear bad credit history?
It comes down to several things. You could wait for the negative items to fall off your report on their own (more on that later). You could work on disputing the negative items yourself. Or you could employ experts in credit restoration.
But first, let’s clearly define poor credit. We must understand the problem before we try to resolve it.
What Is Bad Credit?
When we say ‘bad credit,’ we are talking about an unfavorable credit history that consists of negative items. These items stem from collections, charged-off accounts, late payments, repossessions, and other factors. These things drag your credit score down, leading to bad credit.
There are two main ways of calculating credit scores. One of these calculation modes is the FICO model. According to FICO, a poor credit score is the one that falls between the 300 and 579 range, with 850 being the highest possible score you could have.
Fixing your credit status from bad to good is imperative for any US adult. Credit scores are significant factors for your future. Lenders, home sellers, landlords, and employers take them into account when assessing if you are a trustworthy individual.
How Long Does Negative Information Stay on Your Credit Reports?
Negative items like late payments, collections, and Chapter 13 bankruptcies stay on your credit reports for 7 years. Other factors like Chapter 7 bankruptcies remain there for up to 10! Fortunately, as the years pass, the effect of certain negative items, such as late payments, tends to wear off a bit. As you might expect, the more recent the negative item, the more impact it has on your credit score. It’s important to note that if you are currently late on any accounts, this will cause your scores to drop drastically. Recency is critical.
Five Important Pillars of Good Credit Scores to Clear Bad Credit History
To nurse your scores back to health quickly, there are five factors you need to pay attention to. We will list them below, as well as the percentages they make of the FICO calculation model.
● Payment history – 35% – Always make sure you make your payments on time and to pay them in total.
● Amounts owed – 30% – Lower your credit utilization and balances.
● Length of credit history – 15% – That can be tricky if you’re a young adult just starting. If you have old accounts, don’t close them just to use current ones.
● New credit inquiries – 10% – Don’t apply for new credit if you don’t have to.
● Credit mix – 10 – The more types of credit you have the better. Some examples of credits are loans, credit cards, and others.
If you act financially responsible in these 5 areas, you can bounce back quicker after suffering from low credit scores.
Credit bureaus are the ones who add items to your reports. And they do so based on the information they get sent from creditors every month or so. So, if you make positive changes to your financial behavior, you may see a positive shift in your score after just one month. Over time, you can clear bad history appearing on your credit reports.
But this may not be a good near-future solution if you’re looking to buy a home (or make any other big financial moves) in the next 3-6 months. One month of lowered balances doesn’t erase months of missed payments or existing collections. You need to be diligent and display creditworthiness for several months to see your credit score move into the ‘good’ credit territory.
Is There a Shortcut to Good Credit?
Hardly. As you’ve figured out from our article above, there isn’t one magic answer to the question, “How long does it take to clear bad credit history?”
By acting responsibly towards your financial status for months (and later in life generally) you can move from the ‘poor’ credit score category to the higher ones – ‘fair’, ‘good’, and ‘excellent’. But this road isn’t an easy one. That is why you can always employ the help of expert credit repair companies that speed up the process. White, Jacobs and Associates not only offers a free assessment of your reports but a repair program that never takes more than 6 months! Contact their professional credit analysts today and step into a brighter future.