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What is a negative credit history and how to fix it

Yes, you can repair a low credit score

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A poor credit score can make it difficult to secure a mortgage, credit card, car loan or even an apartment. That’s because lenders use your score as a way to predict your credit behavior. A series of late or missed payments, a high credit utilization ratio or defaulting on a loan can make lenders question your creditworthiness.

Fortunately, with time and disciplined credit use, it is possible to fix your credit history.

Key insights

  • Credit history is a record of how you’ve handled borrowed money.
  • Missing payments, carrying high balances, opening too many accounts or filing for bankruptcy can all contribute to a negative credit history.
  • To improve your credit history, reduce your credit utilization ratio and always pay your bills on time.

What causes a negative credit history?

A negative credit history is “a record of unfavorable financial behaviors and events related to borrowing and repaying money,” said Markia Brown, a certified financial education instructor and registered financial associate.

It can “lead to higher interest rates on loans and credit cards, difficulty getting approved for new credit, challenges in renting an apartment or getting a job, and even higher insurance premiums,” she said.

There are several factors that can contribute to a negative credit history:

Payment history accounts for 35% of your FICO score — making it the largest factor in determining your score. If you regularly pay your credit card bill or mortgage late or, worse, if you miss a payment, this will negatively impact your credit score.

Late payments can stay on your credit score for up to seven years.

Your credit utilization ratio is a measure of how much of your available credit is in use. It is part of what FICO refers to as “amounts owed,” which makes up 30% of your score. Repeatedly maxing out your credit is a red flag to lenders that you might be overextending yourself.

Try to keep your credit utilization ratio below 30%. For instance, if you have $3,000 in available credit, keep your balance below $900.

When you apply to open a new credit account, creditors will perform a hard inquiry to review your credit report. The occasional hard inquiry will only have a temporary negative impact, but multiple hard inquiries in a short period can indicate a high risk to creditors.

Hard inquiries can stay on your credit report for up to two years.

Closing multiple accounts can negatively affect your credit score in two ways:
  1. If you close an account that you’ve had for a long time, this reduces the length of your credit history, which accounts for 15% of your FICO score. In general, having a longer credit history is positive.
  2. Closing multiple accounts can reduce your credit mix, which accounts for 10% of your score. Lenders like to see a mix, such as credit cards, an installment loan and a mortgage.
Default means you’ve failed to make several payments on your loan or you haven’t paid for a certain period of time. Defaulting on a loan can significantly damage your credit score and will stay on your credit report for up to seven years.
If you fail to make payments on your mortgage, the lender can take back the property. A foreclosure will typically remain on your credit score for up to seven years from the date of foreclosure.
If you are completely unable to pay back your debts, you may have to file for bankruptcy. Typically, bankruptcy will give you the lowest possible credit rating. A bankruptcy can also remain on your credit report for up to 10 years, making it difficult to borrow money again.

How to check if you have a negative credit history

Your credit score is a three-digit number that usually ranges from 300 to 850. The two best-known credit scoring companies are FICO and VantageScore. Both use a combination of factors to determine your score:

  • Payment history
  • Amounts owed
  • Length of credit history
  • New credit
  • Credit mix

Each uses a slightly different algorithm to calculate your credit score. As a result, you might notice that your scores are similar but not exactly the same.

With the FICO model, a negative or poor credit score is typically anything under 580. With VantageScore, a subprime score is below 600.

» MORE: How to build credit

There are also three major credit bureaus: Experian, Equifax and TransUnion. They’re responsible for compiling and reporting your credit data.

You are legally entitled to a free copy of your credit report from each of them yearly. You can request your free reports by visiting AnnualCreditReport.com. Alternatively, you can call 877-322-8228 or download and complete the Annual Credit Report Request Form and mail it to:

Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

How to improve negative credit

If you have a negative credit history, not all is lost. It is possible to repair the damage by clearing any outstanding debts and maintaining responsible financial habits:

  • Monitor your credit report. Check your credit reports for any errors. If you suspect an error, dispute it by contacting the credit bureau as well as the company that provided the negative information. Explain in writing what you think is wrong, with documentation to back up your claim.
  • Work with a credit repair company. You can hire a credit repair expert to dispute any credit report errors, which may be quicker and more convenient than doing it yourself.
  • Make payments on time. To avoid late or missed payments, consider automating your bills. You can also set calendar reminders or alerts to remind you when it's time to pay.
  • Keep your credit utilization low. Aim to keep your credit utilization ratio below 30% at all times. To keep your balance low, you can try making multiple payments throughout the month instead of waiting until the end of the month.
  • Don’t apply for credit unless you need it. Every time you apply for new credit, the creditor will run a hard inquiry. Each inquiry will drop your score.
  • Consult a credit counselor. A nonprofit credit counselor can review your credit report, identify problems in your finances and set you up with a budget to get back on track.

» MORE: How to fix your credit

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    How long does negative information stay on your credit report?

    Most negative information will stay on your credit report for up to seven years. A bankruptcy can stay on your credit report for up to 10 years.

    Is bad credit better than no credit?

    Bad credit indicates you have made mistakes in the past, whereas no credit means you have no credit record at all. Both can make it difficult to borrow money; however, no credit can often be fixed much faster than bad credit — you can build a credit score from nothing in about six months, while fixing bad credit can take a number of years.

    Can you wipe your credit history clean?

    While you can’t wipe your credit history completely, you can dispute any errors that you find in your report. It will take up to seven years for most negative information to fall off your credit report.

    What is a negative balance on a credit card?

    A negative balance on a credit card means your bank owes you money. This may happen if you pay more than you owe on your balance.

    Bottom line

    If you have a negative credit history, don't beat yourself up. Everyone makes mistakes or has a period of financial struggle. Focus on creating a plan to move forward and improve your credit.

    Start by ordering your credit reports and carefully review them for errors. Do this at least once a year. Next, focus on paying your bills on time, every time. Keep your credit utilization ratio under 30%, and avoid applying for new credit unless you absolutely need it.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. FICO, “What's in my FICO Scores?” Accessed April 13, 2023.
    2. Equifax, "How Long Does Information Stay on My Equifax Credit Report?” Accessed April 13, 2023.
    3. Equifax, “What Happens If I Default on a Loan or Credit Card Debt?” Accessed April 25, 2023.
    4. FICO, “What is a Credit Score?” Accessed April 13, 2023.
    5. Experian, “What Is a VantageScore Credit Score?” Accessed April 13, 2023.
    6. Consumer Financial Protection Bureau, "How do I dispute an error or my credit report?" Accessed April 13, 2023.
    7. Experian, “Is No Credit Better than Bad Credit?” Accessed April 25, 2023.
    8. VantageScore Solutions, “The Complete Guide to Your VantageScore.” Accessed April 28, 2023.
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