Your Past Credit History and Paying old debts
While many people are concerned
about their past 7 years with regards to their credit history what is even
more important is the last one to two years. Lets look at an example to better
understand this reason. Lets say that 6 years ago you had a bit of financial
trouble and where late on some payments. Since this time, your credit history has
been perfect, not a single payment missed, and otherwise everything looking
great. It makes more sense that a creditor would look at this and see that even
though 6 years ago you had some difficulty and pulled down your score, that today
you pose little risk. This even applies to "big negatives" such as bankruptcy.
Although bankruptcy
is usually recommended only as your only remaining option, many lenders will
tend to overlook it if you have since had several years of excellence in your
credit. It is a common sense kind of approach. People can change and improve
their old bad habits, when this happens people often forget about the old. This
can be true as well with your credit. So if you have had some negative items
placed on your report lately, don't think that it will take forever to start improving
your chances of a lower rate of interest loan or even just a loan period.
There have been
cases where someone has gone bankrupt, but since they went bankrupt have turned
over a new leaf, and after two years have obtained a loan for a car. After they
have this car and have made all their payments, they have been able to obtain
a loan with their car as collateral. On the flip side, there have also been people
who have never gone bankrupt but have had so much unsecured debt (not secured
by any collateral) that even though they are paying their bills on time have
been turned down for additional credit due to the risk of no security in the
case of defaulting.
Since your potential creditors are usually more interested in your more recent
credit history, debts from years ago would not affect you as negatively as more
recent debts. Some have advised that it is in your better interests to pay
off more recent debts compared to older ones first. However, it is still your ultimate
responsibility to pay off what you owe regardless. While paying off your
recent debts first may help you in some ways, if you are applying for a mortgage
for example, you will most likely have to pay off all old accounts that have
gone into collection before they would approve you. In some cases, really old
collection accounts could be ignored by a mortgage lender. This kind of information
is just something to consider when you are figuring out how to best improve
your credit score. Also remember that after seven years collections will disappear
off your credit report, so in some situations it may just be worth paying
off your new debts.
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