I ran into some trouble with bad credit a couple of years ago, but my circumstances have changed now and I’m back on my feet financially. I have a steady job and a little money in savings, but I wonder how long I’m going to have my credit mistakes hanging over my head. I’ve heard that bad credit follows you around for seven years. Is that true?
Your story is quite common. People, for a variety of reasons, struggle with debt and end up falling behind in their payments. Circumstances change and they find themselves financially healthy again. However, it seems like the “credit crimes” of their past create barriers to moving ahead in the future.
In Canada, TransUnion and Equifax typically only keep reporting on delinquent debt for six to seven years, including collections and late payments. Other notes on your credit report, like debt relief sought through a consumer proposal, can stay on your report anywhere from three to six years after the debt is repaid. Bankruptcy will usually stay on your credit report for six years or so after the date of discharge.
So, depending on how deep your credit trouble was and how long ago it was, you may run into challenges getting credit for some time to come, even if you are in a good place financially right now.
Don’t be discouraged. While you will have to work hard to rebuild your credit, it can be done. Learn from your credit mistakes in the past to have a positive financial future. Eventually, these records of late payments/debt notes will fall off of your credit report.
Remember that positive information stays on your credit bureau too. Proactively try to build your credit back up in the meantime to improve your credit score.
The biggest influence on your credit score is making timely debt payments. If you still have a credit card, plan to make small purchases that you pay off in full on time every month. This establishes consistent responsible credit use, which will help to improve your credit score.
If you don’t have a credit card to do this with, get a small balance credit card secured with cash and follow the same strategy. Aggressively pay your debt down. Having credit cards at or near their balance will drag your score down. If you’ve got debt still in collections, pay that debt off. In some cases, creditors will adjust their reporting after the debt has been repaid.
Another way to improve your credit score is to diversify your credit to show lenders that you are skilled in budgeting responsibly. If you’ve never had an installment loan before, for example, take out a small loan. Taking out an RRSP loan is a good option, as you will build up your savings and improve your credit score at the same time.
Best of luck as you work to rebuild your credit.