Many people make credit mistakes at one time or another. The mistakes that you make may affect your credit moderately or severely, and your credit rating may recover quickly or it may take many years. Here are different types of bad credit and how long they stay on your credit report.
Creditors, including utility companies, can report to the credit bureaus when you are as little as 30 days late. In general, the later you pay, the worse it is for your credit rating. Late payments stay on your report for seven years. When lenders look at your report and see that you have one or two late payments (under 60 days late) over the course of a year, they will tend to not hold them against you. If, however, you have many late payments for different cards and companies, or if the payments are 60 to 90 or more days late, you are less likely to be forgiven, and more likely to be overlooked for a loan.
Being Sent to Collections
Once you are 90 to 120 days late on paying a bill, your account is usually sent to a collections agency. This stays on your credit report for seven years, just as late payments do. Being sent to collections more negatively affects your credit rating than merely paying late, as usually this does not occur until you are three to four months late in paying your bill.
Many times collections agencies will allow you to pay less than what you owe in a settlement to avoid further collection activity. This is called a “charge off,” and after you settle, it will remain on your credit report for seven years, along with the late payments that brought you to this point. Charge offs are a bad sign to potential lenders, as they mean that you did not pay off your financial obligation in full.
If you fall very behind on your bills for any reason, you may claim bankruptcy. There
are different types of bankruptcy, and they can stay on your credit report for either seven or ten years. Some lenders will give you another chance within two years after you file bankruptcy, because you can only file bankruptcy once every seven years. They know that you can not file again (and leave them with an unpaid bill), so while it remains on your report for a long time, it might not affect your borrowing ability for as long as you might think.
Short Sales and Foreclosures
A short sale is when you sell your house for less than you owe the bank. Normally this happens when you buy your house for more than it is worth, or when the market value of your house falls below what you owe for it. A short sale tells potential lenders that you did not fulfill the obligation of your mortgage loan, and remains on your credit report for seven years.
A foreclosure is when you are unable to sell your house at all, or when the bank refuses to accept a short sale. The bank will take possession of the house and auction it off to the highest bidder. A foreclosure affects your credit more negatively than a short sale, and will remain on your credit for seven to ten years.
If you have any of the aforementioned issues on your credit report, don’t lose hope. With good payment history starting today, you can repair your credit in two to three years in most cases. It will not be an over-night fix, but you can slowly but surely add points to your credit score each month by paying your utilities and remaining credit cards on time. You might have good results if you contact a debt counselor to discuss your options in paying down your debt quickly. If you can take care of your finances now, you should be able to obtain credit to buy a house or a car at a reasonable interest level within three years.