Tip #27: Give it time
Many people believe that simply
paying off debts will improve their credit score at
once. This is not true, unfortunately. If you
have experienced a bankruptcy, have been reported to a
collection agency, or have had charge-offs, the record will
remain on your credit report - even after you have repaid
your debts and resolved the problem.
In fact, major problems such as
a bankruptcy will remain on your credit report for seven or
ten years, affecting your credit score. Even if your
credit problems stem from simply not paying bills on time,
it will take some time for the mark to fade from your credit
report and for your credit score to reflect your better
repayment.
Paying off your debts and
resolving problems will help your credit score (since
overdue accounts will be marked as “paid” on your credit
report), but only time will remove the mark of the problems
from your record entirely.
This means that if you have
faced a major setback such as a bankruptcy, you may have to
wait in order to get the best interest rates on larger
purchases. The good news is that the further away you
are from a major financial problem, the less dire it
appears.
For example, if you have
declared bankruptcy, you can expect it to have a huge impact
on your credit score for the first two years, during which
time you will have a hard time getting any credit at
all.
However, after two or three
years, if you have been paying your bills on time, then the
bankruptcy from two years ago will matter less because you
have been rebuilding your credit. Your credit will
still suffer - but you will slowly be starting to work your
way out of the credit problem. Persistence and good
financial habits will get you there.
This means that if you plan on
making a major purchase (such as a house of car) that may
require a loan, you should start working on improving your
credit well in advance - even years in advance - of your
actual purchase. This is because you simply will not
have enough time to radically alter your credit score in
time if you wait too long.
Even if your credit score is
already fairly good, you may need to give yourself several
months of time to boost your credit rating enough to get the
best loan rates.
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