Whether your credit history is good or bad, it’s within your interest to know how long that history will either harm or benefit you, and hopefully this knowledge will allow you to plan out your future. Now, how long the different aspects of a credit report last vary wildly. First of all, hard inquiries, which as you know from our previous articles are usually harmful, last only 2 years. So, if you need to parade your file around to a ton of different lenders in order to get approved for a big-ticket item, but don’t plan on needing any substantial credit for 2 years after, it can make sense.
Next up, are missed payments. These along with other defaults like repossessions, collections or write-offs last 7 years, and so have quite a long impact on your ability to borrow money for many years. Usually, with these types of accounts, it can make a lot of sense to at least make a settlement with the lenders (who are usually willing to accept at least something), in order to have the account considered settled, and thus not have the written-off status. Now, this step will do two important things. First, it benefits you on the credit score because it will turn a write-off status into a settlement made status. On top of that, this change will benefit you when any analyst looks at your file, since it at least shows a willingness to work with a lender when you are unable to afford the payments. Bankruptcies are relatively similar. Depending on the type of bankruptcy it will remain on file for between 7 and 10 years.
Now, let’s move on to the more positive aspects of a credit report. Any positive repayment history in a closed paid-off loan will last 10 years at most. All of this to say that regardless of your commitment to maintaining your credit, it is a never-ending battle. You can’t just be on the right track with credit for a small part of your life and suddenly decide you want a loan a few decades later. Without being actively engaged in the world, the lenders aren’t sure whether they can trust you (I also think there’s an element of getting people stuck in the world as well).
Once you understand the timing of your actions, you should be able to make more informed decisions. Some other cool tips are understanding that there are lots of different credit bureaus, and companies with different levels of access towards them. In Canada, there are three major bureaus: Experian, Equifax and Transunion. Each of these has different weightings towards different parts of the credit spectrum, and I’ve personally seen individuals with 500 Equifax scores with a 700+ Transunion score. While the contents are usually the same, there are many lenders who only deal with one bureau, and so you should always check your credit on all of them to see where you might be better off. Some lenders also only check credit on one bureau, so obviously, you would need to try and match those up.
Another important tip is realizing that closing down an actively well-paid account will usually not benefit your credit. It’s usually much more beneficial to keep any positive accounts (like credit cards) open, but undrawn, since that improves your utilization and also suggests to analysts that you are still paying well.
Last tip, parking tickets and late library fines are not meant to show up on your credit, although there have been many cases where they will show up in collections if unpaid… Usually though, this means that if you are trying to optimize which payments you make - these ones are probably lower on the list. I hope all of this has been helpful, and will allow you guys to make more informed decisions about your credit!
By: Mateo Gjinali
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