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Repairing Bad Credit

What is a credit score?

Your credit (or FICO) score is the number that reflects your credit worthiness – or the “risk” you pose to creditors. FICO’s range from approximately 400 to 800, with anything below 600 usually considered poor credit. To find out your credit score, go to www.annualcreditreport.com for a free credit report.


Your credit score is influenced by a number of factors in your credit history – timeliness of payments, nearness of credit card balances to limits, delinquencies, number of accounts, length of credit history, tax liens, judgments, foreclosures, bankruptcies, and more. Potential creditors (for mortgages, car loans, credit cards, etc.) use your FICO to determine 1) whether they should lend you money, 2) how much money they should lend, and 3) what lending terms should apply. Nowadays, even applying for a new job or leasing a new apartment can result in a credit check. For this reason, your FICO score is more important than ever, and a poor credit score can severely limit your options.

The good news, however, is that even the worst credit can be repaired – given a little time and effort.

How can I improve my credit score?

The first step towards erasing bad credit is to pay your bills on time for three years. While recent good credit habits won’t make your bad credit history disappear, lenders will take it as a good sign.

Items in your credit report have an expiration date; in other words, given enough time, negative items in your credit history will disappear (different items take different amounts of time to go away). So if you start following good credit habits right now, in time your credit score will improve as old mistakes fall off your credit report and are replaced by more positive items. Check your credit report for the original posting dates of items; that way you’ll know approximately when those items should be removed from your credit history (which will allow you to plot a rough timeline for your credit score’s improvement).

In general, common negative credit report items expire according to the following guidelines:
Late Payments – up to seven years from when the late payment was originally reported
Collections – up to seven years from when the account was turned over to the collection agency
Tax Liens – up to seven years from the date you paid them off*
If you don’t pay tax liens off, they can remain on your report indefinitely!
Judgments – up to seven years from when the filing date of the court ruling
o Completed chapter 13 bankruptcies can remain on your credit report for up to seven years
o Chapter 7 bankruptcies can remain for up to ten years from the date filed

Thus, only time can take care of legitimate negative items on your credit report. However, if you follow good credit habits (paying bills on time and using credit wisely) from here on out, those negative items will carry less and less weight with creditors (and have less and less of an impact on your FICO score), until finally they fall away completely.

So, the key to repairing bad credit is to establish good credit habits and follow them carefully. In this way, old mistakes will gradually disappear, and you will have avoided making new ones. Given enough time and care, you can have a whole new credit report – and thus a whole new credit future.

How do I know if I’m on the right track?

By law, everyone is entitled to receive one free credit report annually from each of the three primary credit report agencies (TransUnion, Experian, and Equifax). Check your credit report annually to assess your progress. This is also the best way to catch illegitimate items on your credit report (caused by faulty reporting, identity theft, etc.). You can access your free credit report at www.annualcreditreport.com.

While you’re working to improve your credit, check your FICO before applying for credit. This will allow you to have realistic expectations about your borrowing options and the rates you can expect.

Most importantly, remember that repairing bad credit takes time – so don’t give up!