Low credit score? You may have what’s referred to as Damaged Credit
There can be many reasons for having a low credit score, from too many hard inquiries, to bankruptcy, to simply just not having enough credit history. But what separates damaged credit from something like limited or low credit is the “why” behind the low credit score. In this post, we break down common reasons for damaged credit, how long those negative items remain on your credit report, and the credit card options available to those with damaged credit.
In this post...
Reasons for Damaged Credit
There are many reasons why you might have damaged credit, including:
- a credit history with multiple late payments
- defaulting on loan or credit card payments
- bankruptcy in the last several years
- a charge-off from a creditor, which happens when it becomes clear you’re not intending to make payments
- foreclosure, which is defaulting on a mortgage
- a county court judgment from a court, which is basically a court order to pay a debt
- accounts going to collections, which happens when your debt is sold to a debt collector
- a tax lien from the IRS for unpaid taxes
As you can see, these scenarios are quite different from simply having a short credit history or missing one or two payments over several years. Any of the above signal to a creditor that lending to you is a big risk, as there’s an established history of not paying your balances.
How Long Will You Have Damaged Credit?
There are steps you can take to help your credit score recover from the damaging events listed above those are dependent upon your unique situation. What is universal, though, is the amount of time credit-damaging events say on your credit report. In general, the older the occurrence of a negative item on your report, the less impact it has on your credit score. In other words, if you had an account go to collections 3 months ago, that will be much more damaging to your credit score than a collections report from 5 years ago.
Late payments: start making your payments on time! This is critical, and may require you to exercise more restraint when it comes to your credit accounts — don’t spend more than you can pay in a month, and don’t take out loans that might be hard for you to make regular, complete payments on. Late payments stay on your credit report for 7 years.
Credit default: defaults stay on your credit report for 6 years, so this is, unfortunately, a waiting game.
Bankruptcy: Chapter 13 bankruptcy stays on your credit report for 7 years, and Chapter 7 bankruptcy stays on your credit report for 10 years.
Charge-off: like late payments, charge-offs remain on your credit report for 7 years.
Foreclosure: in keeping with the 7-year theme, a foreclosure will remain on your credit report for 7 years from the date of the first missed payment.
County court judgment: a judgment will typically remain on your credit report for 7 years (or whatever the statute of limitations is in your state).
Collections: collections accounts will remain on your credit report for 7 years plus up to an additional 180 days, whether or not it was paid.
Tax liens: even when paid, tax liens can remain on your credit report for up to 7 years, while unpaid liens will remain indefinitely. If you’ve paid the tax lien, however, you may be eligible to have it removed via the IRS Fresh Start Program.
What Can You Do About Your Damaged Credit?
This topic is outside the scope of this post, but in some circumstances, it may be possible to dispute negative items on your credit report if they are unfair or inaccurate. You can dispute items on your credit report through any of the major credit bureaus on your own, or choose to use a credit repair company which will handle the disputes for a fee.
Can You Get a Credit Card with Damaged Credit?
If you’ve got damaged credit, you still might be able to get a credit card designed for people in your situation. Making regular, on-time payments to a credit card without using more than 30% of your available credit can be one of the fastest ways to give your credit score a boost. What separates credit cards for damaged credit from other similarly marketed cards is generally the following:
- a higher annual percentage rate (APR), often as high as 29.99%
- higher annual or monthly fees
- a program fee that you have to pay before you can complete your account opening
These added fees protect lenders who are taking a risk on someone with a damaged credit history, and make it possible for them to offer their credit cards.
Credit Cards for Damaged Credit
Some of the credit cards for bad credit that we’ve reviewed include:
- Net First Platinum
- Applied Bank® Secured Visa® Gold Preferred® Credit Card
- First Progress Platinum Select MasterCard® Secured Credit Card
- OpenSky® Secured Visa® Credit Card
For more information on getting approved for credit cards with a low credit score, check out our post on how to apply for a credit card with bad credit and some of the secured credits you can get with damaged credit.
The Bottom Line
Damaged credit will make it difficult to open a new credit card, but there are cards out there designed for those with bad credit. Additionally, as time passes, negative items on your credit report will have less and less impact, so if you combine that with on-time payments for any credit accounts you do hold, you’ll be on your way to a higher credit score.
Chase Sapphire Preferred® Card
With a 60,000 point new cardmember bonus when you spend $4,000 in the first 3 months of having the card, plus 2x points on travel and at U.S. restaurants — all for a $95 annual fee — this card is one of the top rewards card values available. Chase points are transferable to 9 airlines and 4 hotels, giving you the option of booking directly via these loyalty programs for some massively lucrative award redemptions in first & business class or at 5-star luxury hotels & resorts.
