3 best ways to build & rebuild your FICO credit score

This post originally appeared March 22, 2018 on CreditCards.com as “Can decades of excellent credit disappear from my report?

By Barry Paperno

Dear Speaking of Credit,
I’m 57. I’ve had credit since I was 18. Car loans. Mortgage. Credit cards. Personal loans. Business loans. Always had excellent credit.

About 10 years ago I paid everything in full. Stopped using credit cards, and pay cash for everything. I have no debt.

I recently went to get a new vehicle and they said I have a zero score. They then showed me my credit reports, and all three had nothing on them. It was like my entire credit history had been erased.

So now I’m debt free, need a loan, and no one will touch me. What happened to 40 years of credit? How do I fix this as quickly as possible?

I see offers of secured cards – but is that the best route, and is it safe? I would greatly appreciate any info or help you could give me on this subject. Even my home loan paid off early is gone. Very perplexing. Thank you. – Robert

Dear Robert,
Perplexing is as good a way as any to describe the feeling of waking up one day to find that 40 years of credit history have gone missing.

And though it might feel like your credit just suddenly disappeared when you weren’t looking, what you’re witnessing is the most likely result of a gradual process in which “old” information is removed from credit bureau files little by little over time.

To help you work your way out of this jam, let’s take a look at how long cards and loans remain on credit reports, how long they continue to affect credit scores once paid off and closed, and lastly, what you can do to once again be able to obtain financing when you need it.

But there’s a catch. The remedies to your dilemma all require returning to that world of creditors and credit bureaus you left behind more than 10 years ago.

There’s simply no other way, since few lenders will loan to you without some track record. So, if you’re willing to jump back in the water, read on.

How long credit information stays on your report
The primary law governing credit reporting, the Fair Credit Reporting Act, strictly limits the length of time negative reporting, such as late payments, charge-offs and collections, can remain on a credit report.

Seven years tends to be the general timeframe for most derogatory information, with 10 years for bankruptcies being the exception.

However, neither the FCRA nor any other law puts such requirements on how long positive information stays on a credit report. Setting their own policies then, the credit bureaus decided some time ago to:

  • Remove all credit accounts in good standing 10 years after being paid off and closed.
  • Remove completed Chapter 13 bankruptcies after seven years, despite the FCRA allowing for 10 years.

No credit report? No credit score
Undoubtedly, you already knew that no longer having a credit report also means no longer having a credit score, since there is no longer any information to score.

Yet you may not have known that creditors stop updating (reporting) your credit information once an account has been paid off and closed. And when the last of those updates stops, so does your score.

As a result, even when there is a credit report full of information, the contents of that report still may not meet the minimum scoring criteria for calculating a score, unless, for a FICO score, the credit report contains at least:

  • One credit account older than six months.
  • One credit account reported within the past six months.

While these requirements can be met by one or two accounts, the latter of the above bullets provides the most likely scenario for your situation.

That is, your score probably stopped being calculated about six months after you paid off and closed your last active credit account more than 10 years ago.

Then, without a score, your credit reports continued to display those closed/paid-off accounts until the last one dropped off sometime during those last 10 years.

How to rebuild credit from the ground up
Your next task then is to rebuild a credit history capable of producing a good credit score from the ground up – and, unfortunately, with no help from those 40 years of good credit.

Relying again on the above scoring rules, expect your credit rebuilding timeline to first include the opening of at least one new card or loan.

Once that account accumulates at least a six-month history of on-time payments and, for a card, low credit utilization, you should once again achieve a FICO score – credit utilization is the amount you have borrowed compared to your credit limits, where having a ratio below 10 percent is best. Such score should be capable of qualifying you for a vehicle loan at an affordable interest rate .

Fortunately, there are three easy-to-obtain credit-building products custom-designed for consumers like you looking to establish a good credit history – including the one you mentioned, secured cards.

What makes these kinds of accounts particularly valuable for establishing credit where there is none, is that, in most cases, they:

  • Ignore credit scores and prior credit history when being approved.
  • Report to all three major credit bureaus once opened.

1. Secured cards
So named for the security deposit required in the amount of the credit limit, a secured credit card works just like a credit card in that it carries an option to pay in full each month without interest, or carry a balance from month to month with interest.

Once reported, a secured card can be as beneficial for the score as the traditional unsecured card.

2. Secured personal installment loans
Typically issued by credit unions and small banks, such loans are granted in the amount of a security deposit placed with the lender, and are repaid monthly with interest for a set term.

For consumers wanting to resist the urge to rack up charges that can raise utilization and lower the score, secured loans provide an excellent alternative to a secured card.

3. Authorized user cards
When granted permission to use an established unsecured credit card by the card’s primary account holder, this account’s entire account history is added to the authorized user’s credit report.

There it can, in many instances, single-handedly create a score with at least six months of history that has been reported within the past six months.

The best solution to rebuild credit
Why not go for the benefits of all three? That’s assuming of course that you’re willing to once again let credit back into your life.

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