We all know that bad credit hurts your credit profile and credit score. But how long does bad credit have that effect? It really depends on the type of credit where the derogatory information is being reported. But ultimately all bad credit information does eventually disappear from your credit report.
Negative credit reporting is limited by federal law.
Fortunately, the length of time that bad credit remains on your credit report is limited by federal law. That law is the Fair Credit Reporting Act (FCRA). That means that even if you do nothing else, your bad credit will eventually disappear from your credit report. That is, as long as you maintain clean credit going forward.
According to myFICO.com, the amount of time that bad credit stays on your credit report is specific to the type of credit it is:
Late payments: 7 years
Bankruptcies: 7 years for completed Chapter 13 bankruptcies and 10 years for Chapter 7 bankruptcies
Foreclosures: 7 years
Collections: Generally, about 7 years, depending on the age of the debt being collected
Public Records: Generally 7 years, although unpaid tax liens can remain indefinitely
There can be some variation in specific lengths of time based on individual state laws, and certainly from one country to the next. But in the US, the above guidelines represent the general rules.
The amount of time since a derogatory entry matters.
It's important to understand that even though bad credit can stay on your credit report for many years, the actual age of the information is also a factor. For example, a bad credit event that occurred recently -- like within the past few months -- will have a greater negative effect on your credit score than one that happened several years ago.
This is true of all kinds of bad credit events, including bankruptcies and foreclosures.
It's also important to know when the clock starts ticking on those time horizons. It actually varies depending upon the type of event.
For bankruptcies the clock starts ticking on the day you file for protection, not the date of discharge. For lawsuits it starts from the date the action was filed, and with judgments it starts from the date the judgment was entered against you. For tax liens it starts on the date of payment of the lien. With charge-offs and collections, the limit begins on the date the account became delinquent. For delinquent payments, it starts the date of the last scheduled payment before the account became delinquent.
Good credit doesn't make bad credit go away--but it does help.
Unfortunately, having a lot of good credit doesn't make bad credit entries go away. But it is possible that having a large amount of good credit will minimize the impact of the bad credit.
This will be even more pronounced if the good credit is more recent than the bad credit. In fact, if you do have bad credit, you need to be even more conscientious about making your payments on time, particularly if the bad credit is associated with an account that you still have currently.
With bad credit, the ultimate strategy is to put as much time between now and the occurrence of the bad credit as possible.
One of the worst possible strategies is to avoid credit entirely if you have a history bad credit. Though that may seem like a positive direction, it's more likely that you'll end up with a credit report that only shows bad credit. You should continue to maintain credit, but always making your payments on time.
The implications for your future
Is there anything that you can do to improve a bad credit history? Absolutely -- try these strategies:
Dispute what you can. There's a strong chance that at least some of the bad credit showing up on your credit report is inaccurate. You should plan on disputing any such events, that way they can be removed from your credit report without you having to wait years for them to be removed by law. Just make sure you have a paper trail that supports your claim with both the creditor and a credit repository.
If you owe it, pay it. An unpaid obligation is stronger than a paid one, even if the paid one has negative information attached to it. You should pay any obligations that you owe, and that will minimize the impact of the bad credit. At a minimum, it will show the bad credit entry as a "paid item," rather than as an open one.
Get help if you need it. If your credit is really bad, and particularly if you have any debt obligations you're struggling to pay, you may need to get legal help to assist you both in managing your debt and in repairing your credit. Beyond a certain point, do-it-yourself doesn't work very well when it comes to credit repair. You should turn it over to people who repair credit every day.
Doing nothing is rarely a positive response to bad credit. You have the power to fix it, even if that requires that you get professional help.