Will Your Bad Credit Last Forever?

If you have a credit score in the 500-600 range, it’s likely there may be some derogatory marks on your credit report.

By derogatory marks, we mean negative information -- think late payments, defaults, collections, charge-offs, foreclosures, tax liens, and bankruptcies. These are all factors that can negatively impact your credit score -- and your ability to secure a loan or line of credit, too. 

When your credit score is in the 500-600 range, you may find it difficult to find lenders who will extend credit to you -- but you don’t have to let this situation dictate the entire course of your life.

Bad credit doesn’t have to be forever. In fact, most derogatory marks eventually fall off your credit report. So why not start on setting up yourself for success right now?

How long will derogatory marks stay on my credit report?

Most negative marks stay on your credit report for seven years, under the Fair Credit Reporting Act (FCRA). This isn’t a hard-and-fast rule, but it’s a baseline to keep in mind. 

Filing for Chapter 13 bankruptcy stays on your report for 10 years, while Chapter 7 bankruptcy is removed after seven years. Hard inquiries -- when a new lender pulls your credit score -- will stay on your report for two years, but the drop will only be a couple of points. 

If your credit history flaunts missed payments or other types of negative marks, it may comfort you to know that the older the delinquency, the less it will impact your score. 

“Late payments will gradually fade off with time and become less important,” says Reilly S. White, Ph.D., an associate professor of finance at the University of New Mexico. 

A late payment from three years ago won’t impact your score as much as a late payment from three months ago. After seven years, the late payment will be removed from your credit report altogether.

Will my score increase after a certain length of time?

When credit bureaus remove negative marks from your credit report, you may see your score increase, depending on the status of your other accounts. If you’ve fallen behind on your debt, you’re not as likely to see a positive bump in your score.

“If the negative account is no longer on your credit report, it’s no longer an influence on your credit score,” says Bruce McClary, vice president of communications at the National Foundation for Credit Counseling. “You’re likely to see a change based on the deletion of the account, and if there are no other blemishes on your account, it can make a significant positive difference in the credit score.”

As you address negative items on your report and as your score grows, so will your options for credit.

Out with the old; in with the new

If your credit history is deficient, you don’t have to wait for your credit report to heal itself. Here are four actions you can take immediately to start nudging your score in the right direction.

No. 1: Pull your credit report and dispute errors

First, you should pull a copy of your credit report to learn what type of negative marks are bringing down your credit score. Check it carefully to see if there are any errors. This is considered a soft pull and won’t ding your credit score.

If you do find inaccurate information on your account, you can dispute it with the credit agency.

During COVID-19 and through April 2021, you can obtain a copy of your free credit report and credit score weekly on AnnualCreditReport.com, which shows your histories from the three major credit reporting agencies: Equifax, TransUnion, and Experian.  Again, checking your credit report won’t impact your credit score.

No. 2: Pay on-time

One of the most important factors in your credit score is payment history, which means paying your debts on time. With every on-time payment you make, you’ll start building a positive credit history. 

“Even though you may have negative information on your report, positive payment history that continues to grow will boost your credit score,” White says.

Positive information stays on your credit report, even for closed accounts, for as long as 10 years. 

No. 3: Pay off outstanding debts

If you’re behind on your debt payments, catching up will help reduce your utilization ratio, which is the percentage of available credit you’re using. This is the second biggest factor making up your FICO score, so it’s important to address it when looking to improve your score.

Balances you owe that are too close to your credit limits can bring down your credit score, even if you’re making on-time payments.  When your credit utilization is too high, it appears as though you’re too reliant on your lines of credit. 

While bad debt does fall off your credit report after seven years and won’t impact your score anymore, your creditors and collection agencies can still collect on it. Until you pay it, the debt doesn’t disappear. 

“Just because it drops off the report after seven years, doesn’t mean it’s not legally collectable, McClary says.  “Out of site shouldn’t mean out of mind.”

The statute of limitations for debt depends on the type of debt, your state, and the state where the suit was filed. 

If legal action has been taken against you for your debt, creditors can pursue wage garnishment to cover the balance owed. For this reason, it’s important to continue making payments on your debt even if it no longer appears on your credit report.

No. 4: Rebuild credit with a secured credit card

As negative marks may make lenders wary of extending new credit to you, it may be attainable to qualify for a secured card to help rebuild your credit. 

With a secured credit card, the borrower puts down a deposit upfront to serve as collateral in the instance they cannot pay their bill on time. These types of cards are less risky for the lender, but can still provide benefits to the borrower.   

Paying your secured card on-time can build a positive payment history and increase your score. The Federal Reserve Bank of Philadelphia found that consumers who used secured credit cards increased their creditworthiness.   

Credit repair takes time

When your credit score is in the 500-600 range, you may find it difficult to find lenders who will extend credit to you. However, as more time passes, the negative marks on your credit report will matter less. 

“Having negative information drop off does increase your score, but what increases your score up to that point is the seven years of strong repayment and getting back on track,” White says.

Remember: Every month of positive credit behavior builds, and the most recent information counts the most. As you address negative items on your report and as your score grows, so will your options for credit.

Bruce McClary is vice president of communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce began his nonprofit financial counseling career in 1998 when he moved from the lending industry to become a credit counselor.

Reilly S. White, Ph.D., is an associate professor of finance and the Endowed Bank of America Lecturer at the University of New Mexico. In addition to teaching MBA students, White serves as the University Outreach Chair for the Chartered Financial Analyst Society of New Mexico, chair of the Cassidy CFA Scholarship, and advisor for the $3.6 million student-run regent’s portfolio.