Credit Improvement:  How Long Must This Go On???

A frequent question I get asked about is how long certain things stay on credit reports.  The general answer to that question is that I like to change the question to one that is actually more important, like this:  What are the most important things on my credit report when I’m trying to raise my scores?  And the general answer to that is to pay attention to the MOST RECENT items on your report.  “How Long” isn’t nearly as important as “What’s Happening Now?”  Your credit score will weight the most recent items much heavier than the older items.  So pay most attention to the here and now and your scores will improve.

Still, the “How Long” question can be answered, so here goes:

1. How Long Do Hard Inquiries Stay on My Credit Report?

Hard inquiries are created every time your credit report is accessed by a business when you apply for credit. For example, your credit would receive a hard inquiry when you apply for a car loan, mortgage, student loan, or credit card.  There are “soft pulls” that go on behind the scenes for various purposes, but these don’t impact your scores.  It is only when you apply for credit that you’ll get hit with a hard inquiry.

Inquiries remain on your credit reports for two years (24 months). However, hard inquiries impact your score for only the first 12 months. After that, they have no impact on your score. The impact on your score during month 12 is far less than in month 1 – again, the more recent the activity the more impact it has.  Usually the impact of the credit inquiry goes away for the most part within a month or two – especially if the credit you applied for was approved!

Beware the “Used Car Salesman” scare tactic:  Don’t get tricked out of comparison shopping when you’re applying for credit.  With mortgages, for example, you have a window of opportunity to apply as many times as you want within a 45 day period without getting dinged for each hard inquiry along the way.  The slimy salesperson who tells you not to shop around because it will ruin your credit score is not your friend.  The Fair Credit Act of 2009 prevents credit bureaus from discouraging you from shopping around.  But don’t make having your credit pulled a habit.  Only do it when you need to have it done and you’ll be fine.

2. How Long Do Credit Accounts Stay on My Credit Report?

Credit accounts refer to all of the accounts for which you hold credit, including credit cards, mortgages, and car loans. Credit scoring models like to see a healthy balance to the types of credit accounts (or “credit mix”) you have and can manage effectively. Negative information on a credit account includes late or missing payments.

Negative account information stays on your credit report for seven years from the date it was first reported as late. If you close the account, the entire account will be removed from your report after seven years. If the account remains open, the negative information will be removed after seven years, while the rest of the account information stays on your report.  Be aware that sometimes the negative information stays on your report for longer than that – for various reasons like the original creditor doesn’t exist anymore.  In cases like this, you file a dispute and it’ll go away – no questions asked.

Positive information, on the other hand, remains on your credit report indefinitely. If you close the account, positive information typically stays on your report for 10 years past the closing date.

3. How Long Do Collection Accounts Stay on My Credit Report?

When you fall behind on making payments on an account, your debt could end up in the collection’s department of that particular company, or sold to an independent collection agency. At this point, the original creditor that sold the debt should not continue to report a balance owed, but you should watch out for duplicate collection accounts.  Again, if you see mistakes on your report, you can file a dispute with the bureaus and have your report corrected.

Collection accounts remain open for seven and a half years from the date the account was delinquent. After that time, it must be removed regardless of when it was paid or when it was placed for collection.

Understanding how collection accounts can affect your credit score is tricky. The most important factor that will affect your credit score when it comes to collections is how recently the collections occurred—the more recent the collection, the lower the score. Multiple collection accounts or lawsuits resulting in judgments can also lower your score.

While there’s no way to tell exactly how much a collection account will affect your credit score, it is one of the higher penalties, so the best course of action is to avoid having accounts sent to collection in the first place.

4. How Long Do Public Records Stay on My Credit Report?

Public records include any of your personal information that becomes public knowledge, including bankruptcies, tax liens, and judgments.

The type of public record will determine how long the information stays on your credit report.

Chapter 7, 11, and 12 bankruptcies stay on your credit report for 10 years from the date filed. Completed Chapter 13 bankruptcies are usually removed after seven years from the filing date.

Tax liens remain on your credit report for seven years from the date filed if they are paid, or indefinitely if they are not. If you settle these accounts, ask that they get removed from your report as part of your settlement.  They usually just want your money and they are usually willing to agree to this stipulation.

Paid judgments remain on your credit report for seven years from the date filed, and unpaid judgments remain for seven years or the governing statute of limitations, whichever is longer. Since unpaid judgments can usually be renewed, these may remain on credit reports for a long time.

There is no way to know exactly how many points your credit score might drop with a public record on file, but the effect of public records on your credit report could be severe.  And with mortgages, there are usually mandatory waiting periods following public records events.