Time as they say heals everything; dealing with the philosophical aspect of this belief is beyond the scope of our discussion so we will focus only on the impact of time on credit score. Credit ratings are all about how one has dealt with their debt in the past; based on the credit history lenders try and judge the behavior of the borrower in the future. This past behavior, taking into account various variables and aspects is presented objectively in the form of a credit score. So time creates credit trail and thus the credit score too. With time you can improve your score and there are certain instances when time can help you without you actively doing anything.
1. Time Can Help You Get a Credit Score:
The first aspect where time can help you is, getting a credit score. As per the guidelines that are followed by most credit agencies, people who have a history of less than six months are not scored. Instead of a score ranging from 300 to 900 the individual is given a score of NH. In such a scenario, if a person already has some kind of debt he/she just needs to wait for the required time, pay his/her dues on time and follow basic credit rules to get a healthy score in time.
2. Settled Accounts Become Less Important Over Years:
If a borrower has settled a loan then this is something that could spell a lot of trouble for future borrowing. There is almost no bad credit fix for this one except to pay the dues or just wait. A settled account stays on the CIR for seven years, which is a fairly long time and getting new credit in the mean time could be challenge. However if there are other loan installments or credit card dues that one has continued to pay regularly in the ensuing period and if one has not indulged in credit hungry and risky behavior the impact of a default reduces over time. However here it important to say that a settled account will always raise a red flag, its impact with reduces with time as long as there are no further defaults. Loan defaults are not included in the CIR after a period of seven years so they have no bearing on the score at all.
3. Deeper Credit Trails are Better for the Credit Score.
One of the five factors that influence the score of an individual is the length of credit history, the deeper the credit trail the better it is. Thus if you have a loan then there is nothing better for your credit health rather than let it run its full course. Loans that are serviced well and run their full course add to the score. The same applies to credit cards, it is better to keep old cards as they are better for the rating.
4. Older Missed Payments Harm the Score Less:
The CIR has payment records of last 36 months, so each time there was a delay in paying your dues in the last 3 years will be reported in the CIR. However older the delay the lesser its importance is in the eyes of lenders if you have managed to be regular in your payments generally. If you wait for the right amount of duration, the missed payment may cease to be a part of your CIR (once the 36 months are over). Here again it is important to mention that one cannot simply miss payments regularly and forget about it. Their impact reduces over time but sometimes one may not have sufficient time to wait and increase credit score, if they need a loan quickly.
5. Impact of Hard Enquiries is also Time Bound:
Hard inquiries are inquiries by financial institution into the score of an individual. These are also taken into account when calculating the score. However what needs to remembered here is that enquiries for 12 months or maximum past 24 months are considered for calculation purposes. Thus make sure you wait for the right time before applying for a loan, spacing out loan inquiries over time will reduce their impact on the score.
So while it is always important to be careful about debt, there are some problems that time can take care of. However this does not mean you can be irresponsible in your credit handling!