The first step to buying a car is getting approved for an auto loan. Now, loan approval is easy for people with good credit score. But what about people with bad credit score? Do they have to suffer for making a few mistakes in the past? Are they destined to get rejected by lenders?
The answer is no. Negative credit information doesn’t remain forever on your credit report. After a set amount of time, negative credit information is removed. According to Fair Credit Reporting Act, there are different time frames for different types of credit information.
1. Chapter 7 Bankruptcy – Information related to Chapter 7 bankruptcy remains on your credit report for ten years from the date you have filed for bankruptcy.
2. Chapter 13 Bankruptcy – Chapter 13 bankruptcy remains for seven years from the date of filing.
To have a good credit score, you must pay every bill before the due date. If you have not paid your bills before the due date, it is considered as “late payment” by the lender and information related to “late payment” is visible for seven years.
If you have not paid your taxes, it will show on your credit report for an indefinite amount of time. The information related to tax liens will be removed only when you pay them. After you settle the balance, the information can stay for seven years.
Other public records such as paid judgments as well as unpaid judgments can remain for seven years from the date they are filed.
A collection account is a loan that has been turned over to a debt collection agency. If you do not make payments to the lender, he/she may sell or transfer your loan to a third-party who now has the right to collect money from you. Such information can stay on your credit report for seven years starting from the date the account first became due.
If you have paid off the loan by making regular payments, the information will remain on your credit report for ten years from the last date of the account activity. However, if you have unpaid credit accounts, it can remain on your credit report for seven years beginning from the date the account first became due.
If you have any kind of negative information on your credit report, it will be removed in a couple of years. Once the information is deleted, your credit score will improve and lenders will offer you better interest rates.