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Why It Takes 7 Years To Establish Good Credit

A good credit score doesn't come quickly. Excellent credit requires seven years of open credit accounts and on-time payments. Here's why, and what you can do to manage your finances while working to build good credit.

Let’s say you want to improve your credit score. Or maybe you don’t even have a credit score yet, and you want to get one—preferably a good one. How long is that going to take?

Answer: Seven years.

Seven years seems like a long time, but there’s lots you can do in the mean time to help you score and set yourself up for long-term credit success.

Why seven years?

Before the Fair Credit Reporting Act was passed in 1970, the House and Senate debated a “reasonable period of time” to wait before removing negative information from credit reports. They settled on seven years – a length of time already commonly used in the industry.

The timeframe balanced consumers’ need to reestablish good credit and lenders’ need for reliable information. “The seven years as a predictive timeframe has withstood the test of time when it comes to balancing fairness against safety and soundness concerns,” says Norm Magnuson, vice president of public affairs for the Consumer Data Industry Association (CDIA).

You have to have seven years of credit history to have “good credit” at all

Because of the seven-year rule, you can have a spotless payment history, but still get turned down for certain credit cards if your history doesn’t go back at least seven years.

Why is that? While the “average length of credit” only accounts for 15% of your FICO score, your payment history (all seven years of it) accounts for 30%. Think of it like taking a test: If you’ve only answered 15% of the questions, it doesn’t really matter that you’ve gotten all of them right. You still don’t pass.

But that doesn’t mean your score won’t improve as the years go by—with each year that passes without a missed payment or a credit limit exceeded, your score gets a boost. Eventually, you’ll hit that sweet seven-year mark, and ascend to the highest of credit heights.

But to even get a FICO score, you need to have at least six months of credit history, and one credit bureau reporting your activity. Once you do get a credit score, you might notice that it’s going up into the high 600s or even 700s. Sometimes, you can be turned down for credit even with this seemingly good credit score, just because the bank has decided not to take on the risk of someone who doesn’t have a fully-established credit profile yet.

Read more: What credit score do you need to be approved for a credit card?

How can you get credit with a short credit history?

How can you establish credit if no one will give you a credit card? There are a few ways: You can take out a secured credit card, a credit-builder loan, or have one of your parents add you as an authorized user on one of their cards. This will help you jump-start your credit history, so you can start running out that seven-year clock.

New lenders like SoFi, Upstart and Earnest are beginning to realize the unfairness of penalizing responsible young consumers just for having a “thin” credit file. These lenders can provide personal loans and/or student loan refinancing to borrowers who may not have lengthy credit histories if they meet other criteria, such as strong academic records and reliable jobs.

It may seem unfair to be penalized for simply being young, but the companies want to have as much data as possible before they decide to take a risk on someone.

What happens to your credit after seven years?

After seven years from the date of delinquency (more on that below), credit bureaus should remove certain negative information:

  • Single late payments (utility bills, credit card bills, etc.)
  • Late payment history
  • Accounts sent to collection
  • Discharged Chapter 13 bankruptcy, where at least some of the debt is repaid
  • Judgments (paid or not)
  • Paid tax liens

Positive accounts remain on your credit report longer than negative accounts. Accounts paid should stay for ten years. Open accounts with no negative payment history can remain indefinitely. So maintaining accounts and paying on time does have advantages!

Is any debt not removed?

Some debt takes longer to come off your credit report.

  • Chapter Seven and Chapter 11 bankruptcies remain for ten years.
  • Unpaid federal tax liens remain for ten years.
  • Unpaid state tax liens can remain indefinitely.

When is debt removed?

Late payments and collection accounts are removed seven years from the delinquency date. When exactly is that?

The date of delinquency is the date the bill officially became late. On a one-time account, the seven-year clock starts ticking the day the bill became past due. Say you’re 30 days late on a payment—the clock doesn’t start the day the bill was due, but the day it was officially late, 30 days later.

On an account with multiple late payments, the seven-year clock starts from the first missed payment, a date known as the original delinquency date. Each recorded late payment is deleted seven years after the due date.

If the account then went to collections, the seven-year clock begins again from the date the account’s sold to a collection agency—usually 180 days from the date it became past due. That means the clock can start as late as six months from the first missed payment, if the debt led to collections, foreclosure, or repossession. So instead of waiting seven years, you may be waiting seven and a half years.

The clock on a bankruptcy starts from the filing date.

Once the debt’s gone, is it gone permanently?

Credit reporting agencies can retain expired data, though they’re not required to. There are a few exceptions to the seven-year rule. If you’re in any of these situations, credit bureaus may report negative information more than seven years old.

  • If you’re applying for a loan of $150,000 or more (to buy a house, for instance).
  • If you’re applying for a job with a salary greater than $75,000 and the company runs a credit check.
  • If you’re taking out a life insurance policy worth more than $150,000.

How can I improve my score now?

What can you do while you’re waiting? Plenty.

  • Pay all subsequent bills on time. A student loan account, for example, may return to good standing after twelve consecutive on-time payments.
  • Settle small debts. See if the collection agency will agree to take the debt off your credit report once it’s paid in full.
  • Request your report from each of the three bureaus (Equifax, Experian, and TransUnion). See if any debts are more than seven years old. If so, send a letter to the credit bureau requesting that the expired debt be removed. Know and cite your rights under the Fair Credit Reporting Act.
  • Dispute debts that you don’t owe (e.g. medical bills your insurance should have covered). Start with old debts. The older a debt is, the harder it is to verify.
  • Preserve your credit history. If you’re closing accounts, start with the newer ones, or don’t close them at all. Older accounts indicate a longer credit history, which is better for your report.

Most importantly, be proactive. Don’t wait seven years to work on building good credit! Your planning should start now.

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