Rebuilding Credit After Debt: Everything You Need To Know
If you have struggled with debt in the past, then it is highly likely that your credit score isn’t quite what you would want it to be. While this is understandable, it is incredibly frustrating: a poor credit score can influence everything from your ability to find somewhere to whether or not you are able to obtain a cellphone contract. A poor credit score can feel like a bind and, unfortunately, many people who have battled debt find that their score is pockmarked by the experience.
Worse yet, if you reach a point where you have been able to settle your debts and embrace a debt-free life, your credit score becomes even more problematic. While you have moved on and embraced the principles of good personal finance, your credit score hasn’t – marks on your report can remain in place, adversely affecting your ability to retain credit, for up to six years. This feels very much like you are being punished for something that occurred many moons ago, and can restrict your life in a variety of ways.
So you look for ways to rebuild your credit
Rebuilding credit is a financial principle that seeks to absolve the damage caused by your prior debt. You will see plenty of references to guides that promise to “rebuild your credit score”; we are surrounded by adverts for products that claim to be able to heal the wounds of the past, resolve your score once and for all, and allow you to move on with your life. These products and financial services companies make credit rebuilding sound like a basic process that anyone can obtain and always delivers results.
Unfortunately, rebuilding credit doesn’t quite work like that. Many people imagine the process is simple and easy, especially when they have paid off a substantial debt in the past. In doing so, surely they have proven the soundness of their finances, and their score will rebound naturally, perhaps enhanced by a few credit-building activities?
The difficult truth
If you have reached a point where you have settled your debts and embraced a new financial life, then it seems like it’s only fair for your credit score to do the same – but this isn’t what actually happens.
First and foremost, even if you have settled the corresponding debt, the marks on your credit file – the ones that are keeping your score low – will remain there, provided they are factually accurate, for around six years. Admittedly, the caveat of factual accuracy is important: if you suspect there is a mark on your credit file that isn’t accurate, you can file a dispute. However, if you know that a mark on your credit file is accurate, there is no point in filing a dispute – you just have to, for want of a kinder term, live with it.
It is also important to note that if a company tells you that they can remove marks from your credit file, don’t believe them – they can’t. Those marks will be on your file, and will be impacting your credit score, for six years.
All is not lost
The above information – that your credit report has been damaged and will remain that way for the foreseeable future – can cause a huge amount of distress. It doesn’t seem fair; it impacts your life; and it prevents you from truly turning a page and embracing a new financial chapter.
However, it is worth considering the fact that credit rebuilding is a real thing, and it genuinely can be beneficial. There are a variety of credit building techniques, starting with secured options starting with basic options such as maintaining your bank account well and moving into more expansive, secured options such as the Open Sky credit card and similar products. While these options can’t remove the past, they can paint a picture of a brighter, financially healthier future.
If you engage with credit building activities, then this is likely to be an option that produces good results for you. However, it is essential that you keep these techniques in perspective, and don’t expect to see miracle improvements in your credit score. Think of these techniques as essential support structures of a house; the roof, your previous credit score, is still there weighing them down, but these support structures help to keep the roof elevated and looking as good as possible.
The long wait
There is no denying that the process of rebuilding credit and getting back to an even keel with your score is a long process. However, it’s worth keeping in mind the fact that six years is the worst case scenario. Credit file marks are dated from the time they were sustained, so any marks you obtained prior to 2012 have already rolled off your credit file, and more will in due course.
If you are struggling with the long wait for your credit file to repair, it’s worth going through your credit file and noting down the dates that various marks will expire. In some cases, this will be disheartening; if you note a mark has five or six years left to run, this can be difficult to process. However, you will likely find some indicators that are due to expire much sooner than that, which can boost your resolve and make you feel more confident when contemplating the future.
It is also beneficial to keep an eye on the dates of your credit file, as you may need to submit an application for an expired mark to be removed. This usually happens automatically, but if you note a mark that is over six years old, you can submit an application for removal.
Volume matters
The above information is important because when it comes to marks on your credit file, volume matters. If you have five marks of bad credit management on your file, then your score will be far lower than if you just had two. So when these marks expire is an important factor in improving your credit; if you combine marks expiring with a solid effort at rebuilding credit, your score should improve, even if you are waiting for other marks to settle.
In conclusion
It seems highly unjust that you can settle a debt and settle into a new life of financial prudence, and still be haunted by the debt and credit defaults of your past. However, by rebuilding your credit and carefully monitoring your file for the expiration of detrimental marks, you should be able to find yourself enjoying the benefits of a good credit score as soon as possible. Good luck!
