Make the Most of Your Credit Score

How Long Will Negative Information Hurt My Credit Score?

• Late payments can generally stay on your credit report for seven and a half years.
• Collection accounts and charge-offs can be reported for seven and a half years from the date you first fell behind leading up to the collection account or charge-off.
• Bankruptcies may be reported for ten years from the date of filing, though the major credit bureaus will remove Chapter 13 bankruptcies (where you pay back some of your debts) seven years from the date of filing.
• Unpaid tax liens may be reported for fifteen years or longer. Paid tax liens may be reported for seven years.

Keep in mind:

• The older negative information becomes, the less of an impact it may have on your score
• New positive credit references can help improve your score, even if your credit report still contains negative information.

That's why it is important, if you've had credit problems in the past, to establish positive credit references to boost your credit score. That does not mean you should carry debt. If you can't qualify for a regular credit card, for example, you may be able to get a secured MasterCard or Visa card, which requires a security deposit. Use it from time to time for purchases you would make anyway and then pay the bill in full to avoid interest charges.

How Much Can A Poor Credit Score Cost?

Your credit score will likely be a factor in the interest rate you are charged for loans. Here's an example:

Total Interest on a 4-Year Auto Loan for $20,000
Excellent Credit Score (720 - 850): $2128
Poor Credit Score (590 - 624): $6919

In this example, the difference between an excellent credit score and a poor one is $4791 in interest!
Source: MyFico.com credit calculator May 31, 2003.

Should I Close Old Accounts?

Many consumers who review their credit reports find old credit card accounts they haven't used for years still listed as open accounts. You may think it's a good idea to close those accounts and have them listed on your credit report as closed. That's not necessarily the case. Fair Isaac Co. says that closing old accounts can't help your FICO credit score, and can only hurt it. Why?

Credit scores are based on information about how you've handled different types of credit over time. When you close out a lot of accounts, you may limit some of the information that could be helpful in predicting how you'll pay in the future. You may also shorten the average length of your credit history. When it comes to credit scores, a longer credit history is better.

Unless you have a specific reason for closing accounts -- you're getting divorced for example, and want to close your joint accounts - you may want to leave your old accounts as they are.