How fast can you fix a credit score, and how do you do it?

Having bad credit may make applying for loans and credit cards feel impossible. But it is possible to recover from a bad credit score, though the length of time it will take may vary.

Checking your credit report is often a good start, as is demonstrating your financial responsibility.

How did I get a bad credit score?

There are many reasons why you may have a less than perfect credit score. Perhaps you had money troubles in the past, made a simple mistake, or were a victim of fraud or identity theft. Sometimes simple bad money habits can negatively affect your credit score, like frequently letting your household bills go overdue.

Banks and other financial institutions report negative credit events to credit reporting bureaus, where they are recorded in your credit history. This credit file is then used to create your credit score, which credit providers use to quickly get an idea of whether you’re a reliable and responsible borrower when you apply for credit.

How long do negative credit events stay on my credit file?

Negative credit events don’t stay on your credit file forever. In time they will expire as new information is added to your credit history and your credit score is recalculated.

Generally, the more severe the negative credit event, the longer it will stay on your credit file.

Repayment history – 2 years

If you’ve let your loan or credit card payments run more than 14 days overdue, this will be recorded in your credit file as a late payment.

While one late payment is unlikely to meaningfully affect your credit score, a consistent pattern of late payments could indicate trouble managing money, bringing your credit score down.

It’s worth noting that there is no minimum amount that can be reported for a late payment - which means even if you’re just a few dollars late on payment, it will still be recorded.

Credit enquiries and applications – 5 years

If you’ve had an application for credit rejected, that will be recorded as a negative event in your credit file, potentially bringing down your credit score. Multiple credit applications over a short period of time can also indicate to lenders that you may be a risky borrower.

As a broad guideline, more than five credit applications in a year could be seen as risky.

Writs, summons and court judgements – 5 years

If a lender has gotten the law involved regarding a loan or credit agreement, this will stay on your credit file for five years.

Payment defaults – 5 years

If a payment of $150 or more is overdue by more than 60 days, a default may be recorded in your credit file, which can seriously affect your credit score.

Even if the overdue accounts are later paid off, the defaults will remain on record for five years.

Bankruptcies, debt agreements and personal insolvency agreements – 7 years

If you’ve had to go into bankruptcy or make similar arrangements after experiencing financial difficulties, this will stay in your credit history for seven years, affecting your credit score.

How can you fix a bad credit score?

Ordering a copy of your credit report can let you review some of the information that goes into calculating your credit score. Knowing what’s in your credit history can give you a better idea of how you can set about fixing your own bad credit.

Sometimes mistakes and inaccuracies end up on your credit report. Maybe credit information for a family member or someone with a similar name was accidentally added to your credit file. Or maybe you’re the unfortunate victim of fraud or identity theft, where someone has applied for credit and/or run up debts in your name.

If you have bad credit due to mistakes on your credit file, contact the parties involved about getting the information corrected and setting the record straight. Once your credit file has been updated with the correct information, you can expect to see an improvement in your credit score.

Thanks to Comprehensive Credit Reporting (CCR) it may be possible to improve a bad credit score by consistently practicing positive credit behaviours to counteract some of the negative credit events.

If you can steadily pay your bills on time (such as by organising direct debits), pay off outstanding loans and cancel credit cards you don’t need, you may be able to slowly improve your credit score over time.

Finally, there’s time itself. It may take five to seven years, but eventually even defaults and bankruptcies will come off your credit file, and cease affecting your credit score. If you can keep a relatively clean credit record until then, you can usually expect to see an improvement.