I Ruined My Credit: Is it Too Late to Improve My Credit?

Buying your credit card comes with a scale showing how you compare to your peers. Getting a failing grade is discouraging. Don't despair. You are not doomed to high interest rates and subprime credit cards forever. Even if you do not actively build your credit, negative information eventually ages off your credit report. If you begin to improve your credit score now, you get the prime credit score you so desperately want when the negative information ages off your credit report.

Too Much Debt

A big indicator of credit distress is maxed out credit cards. If you are paying the minimum to keep from going over your credit line, you need to step back and reevaluate your plan. Cut up the cards and set a plan to pay down the balances. Always pay more than the minimum otherwise you are simply paying interest on interest and it'll take years to pay down the balance. Check your statement next month. Many creditors list on the credit card statement how many years it will take to pay off the debt if you only make minimum payments. As you pay off your credit cards, immediately take the money you are paying towards that card and put it towards another debt. As your balances lower to underneath 30 percent utilization, your credit score should begin creep up.

Late Payments

A single 30-day late payment can drop your score by 80 points. Imagine how bad a 60, 90 or 120 day payment mark hurts. Once you get a late payment, the account turns to a negative account for the purpose of credit reporting. It takes six years from the date of entry for negative payment information to age off your report. Make sure you keep making on-time payments between now and then to turn that account back to positive.

Collection Accounts

Collection accounts significantly lower your credit score. Collection accounts show your creditors that you defaulted completely on an owed debt and the company wrote off ever getting payment back. A collection entry stays on your credit report for six years from the date of entry. Paying off the debt does not help your credit score. It just marks the account as closed. The only way to remove the entry is to request removal in exchange for payment in full -- and even that might not work. The collection account hurts the most at the time of entry. As the account ages, it factors into your score less.

Judgments

Judgments occur when your creditor takes you to court and sues for the money. A judge signs a judgment allowing the creditor to pursue wage garnishment or a bank levy to force payment. Judgments appear in the public record section of your credit report. Judgments stay on your credit report for six years from the date of entry.

Repossessions

When you default on an auto loan, the finance company can take possession of the vehicle and sell it to cover your debts. A repossession shows in the public records section of your credit report and stays for six years. If the car doesn't pay off your total loan balance, a collection entry could also appear or you could end up in civil court facing a judgment as well.

Foreclosure

When you default on a mortgage loan, the mortgage company files for foreclosure on the property. After foreclosure, the bank takes possession of the house and sells it to recover money. Any money left over goes to a deficiency judgment or is written off. Foreclosures are also public records and stay on your credit report for six years.

Bankruptcy

Bankruptcy is about the worse thing you can do to your credit score. Bankruptcy is the total default on all your financial obligations. You legally declare you cannot pay your bills. Bankruptcies stay on your credit file for six years from the date of entry.

Six years seems like a lifetime in the credit building stage. Keep in mind that as you time marches on, older accounts and information weighs less in the credit scoring model. A missed payment four years ago isn't going to affect your score as much as four years of subsequent on-time payment history.