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Credit Score Rebound

2.5 million consumers snap back to better credit as penalties expire.

The end of this year and the start of 2017 could bring cause for celebration beyond the holiday season. That’s because 2.5 million consumers should see their credit scores bounce back as Great Recession credit penalties begin to expire. That’s according to a new report from Experian, one of the big three credit bureaus in the U.S. credit system.

Good Credit Road Sign

The study is specifically tailored to look at “boomerang” borrowers. These are consumers who previously faced a significant negative credit event, such as bankruptcy or foreclosure, who are now bouncing back to reenter the housing market.

  • Consumers who previously had a foreclosure and have opened a new mortgage have an average credit score of 680 – that’s a 20.8% improvement in their scores since those foreclosures happened back in 2009 and 2010
  • Consumers who previously had a short sale and now have a new mortgage have an average credit score of 706 – an improvement of 16.5% since the short sales happened.

Understanding credit penalty expiration dates

The reason for the bounce back has to do with the Fair Credit Reporting Act and the regulations it establishes for how long negative information can remain in a consumer’s credit report. According to the FCRA, most negative information including a short sale or foreclosure can only remain in a consumer’s credit report for seven (7) years from the date of the action.

Since many of these penalties were incurred at the height of the recession in 2009 and 2010, those penalties are beginning to expire this year.

“Having a negative item like a short sale or foreclosure fall off your credit report can provide a significant boost in your score and borrowing ability,” says April Lewis-Parks, Financial Education Director for Consolidated Credit. “Knowing when penalties will expire can help you strategically plan ahead for new financing, such as buying a car or home.”

A proven strategy for rebuilding credit

If you’ve had one of these negative items, Consolidated Credit recommends that you take the following steps:

  1. Download free copies of your credit report through
  2. Focus on the negative items that are listed separately in your report.
  3. Take note of penalty expiration dates:
    1. Foreclosures are removed 7 years from the date of the foreclosure filing
    2. A short sale penalty remains for 7 years from the date of the short sale
    3. A Chapter 13 bankruptcy remains for 7 years from the date of final discharge
    4. A Chapter 7 bankruptcy remains for 10 years from the date of discharge
  4. See what other negative items may be damaging your credit, such as late or missed payments. These incur a 7-year penalty from the date of the missed payment
  5. Make sure all information is correct; if it is not, then you need to dispute those items with the credit bureaus:
    1. Make a dispute if an expired penalty has not been removed on time
    2. Make a dispute if an item is incorrect, such as a payment listed as “missed” even though you made the payment as scheduled

“If you have a goal to purchase a new car or home over the next year, plan strategically around when any significant penalties fall off your credit report,” Lewis-Parks advises. “By taking that little bit of extra time, you can save significantly on new financing because you can qualify at much lower interest rates. This can lower your monthly payments, as well as the total interest charges you can expect to pay over the life of the debt.”

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