Loans for bad credit history

Finding out you have bad credit often comes at the worst time. You’ve just applied for a credit card, a car loan, a mortgage or even an apartment, and you were rejected.

Along with the dream-crushing news comes a letter that spells out the reasons you weren’t approved. It may say things like “Too few installment accounts” or “No recent revolving account activity.” And even though they’ve given you reasons why your credit isn’t good enough to be approved, you’re still lost on how to actually fix your credit.

The first thing you need to do is get your credit reports and credit scores. You can get free copies of your credit reports once a year under the Fair Credit Reporting Act. (Here’s how to get your free annual credit reports.) You should get your credit reports from each of the major credit reporting agencies, since each report may contain different data that could impact your credit scores. You’ll rarely know which credit report is being pulled by a lender, so it’s important to make sure all of them are accurate and you’ve addressed any and all issues. You can check your credit scores for free every month on Credit.com to track your progress as you fix any credit mistakes.

You Can’t Fix Bad Credit in 30 Days

Some credit score mistakes can be resolved quicker than others.

A good example is your credit utilization — the amount of debt you have relative to your credit limits, and the second most important factor in your credit scores. It’s best to keep your credit utilization below 30% (10% is even better) to show creditors that you can manage your available credit responsibly without maxing out your cards. If you went a little overboard during the holidays and went over that 30% mark, you can pretty quickly undo any small drop you may have noticed in your score by paying off those balances and getting your percentage back under 30%.

But that is more the exception than the rule. Some credit mistakes will impact your score for years. It’s tough news to hear, especially if you were really counting on that mortgage approval to finance your dream home. That’s why checking your credit on a regular basis is important. If you spot a mistake and can get it fixed before you apply, you can avoid getting that “Dear John” letter from a lender.

So How Long Does It Take to Repair My Credit?

If you have accurate, negative information on your credit reports, it can take a while for it to age off. Here’s how long negative marks can remain on your credit report:

• Late Payments: 7 years from the late payment date
• Foreclosures: 7 years
• Collection Accounts: 7 years and 180 days from the date of delinquency on the original debt
• Short Sales: 7 years
• Bankruptcies: 10 years from the filing date; 7 years for Chapter 13 cases
• Repossessions: 7 years
• Judgments: If the judgment has been paid, 7 years. If unpaid, potentially longer
• Tax Liens: 7 years after they are paid
• Charge-Offs: 7 years from the date the account was charged off

However, if you have inaccurate, negative information on your credit reports, you can see some big changes relatively quickly to your credit scores. Credit reporting agencies have to respond to disputes of inaccurate information within 30 days, which is much shorter than the years-long wait you’ll face with accurate derogatory information. If the credit reporting agency sides with you, they must remove the mistake immediately by law. In a 2012 Federal Trade Commission study on credit report accuracy, 79% of people who disputed an error on their credit reports had that error removed.

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Steps to Rebuild Your Credit

Your path to better credit can be vary significantly depending on what your core credit score problems are. Here are some tips for repairing your credit.

1. Pinpoint Your Credit Score Killers

If you have one of those “adverse action letters” we mentioned earlier, you already have some idea of what’s holding you back (even if you don’t understand some of the lingo being used). That can help you narrow down your big credit score problems.

Even though it may seem complex, your credit score is based on five core factors: payment history, credit utilization, age of credit accounts, mix of credit accounts and history of applying for credit. Each is not equally important.

Your payment history is the most important factor, which is why even just one late payment can drop your score significantly.

Your credit utilization is the second biggest factor, and it encompasses the amount of revolving credit (i.e. credit cards, home equity lines of credit) you’re using compared to the limits on those accounts.

The age of your credit accounts is another important factor, calculated by looking at both the age of your oldest account and the average age of all your accounts. If this factor is hurting your scores, there’s not much that can be done to “fix” it except not closing accounts.

The next factor, the mix of your credit accounts, looks at how you handle different types of credit. There are two main types of credit — installment accounts (i.e. mortgages, car loans, student loans) and revolving accounts (i.e. credit cards, lines of credit). Creditors want to see that you can handle both kinds of credit responsibly. If you only have credit cards in your past, a car loan or a mortgage can help improve your credit score, but it’s rarely a good idea to take out a loan just to build credit.

The last major factor, your history of applying for credit, may be holding you back if you applied for a lot of credit accounts recently. This factor also takes some time to correct, but any hard inquiries into your credit only ding your scores slightly, and as they get older will stop impacting you as much. A year is generally when they stop hurting your credit scores.

Now you know what’s hurting your credit scores. What do you do first? Since one of the fastest ways to see some credit score improvement is fixing any errors on your credit report, that’s your next step.

2. Clean Up Your Credit Report

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