The credit reporting system doesn't make sense....well, at least it seems like it isn't very logical for most of population. A majority of the questions I receive have to do with the basics of the credit system. Why does it work this way? This doesn't make any sense? Since the credit system has only been open to consumers for a few years, I guess a little confusion is to be expected.

This question we received yesterday is a prime example:

If there is a negative record on your credit report and you pay the item in full it still remains on your credit report for seven years, right? If so, how can you ever raise your credit score? Do you just wait for 7 years?

As this reader knows, negative records such as late payments, collection accounts and judgments will remain on your credit report for 7 years under FCRA law. These records are not removed when you repay or close the account. There is simply no way to remove them before their natural expiration date.

This is the "history" part of the term "credit history." Credit reports are meant to be a complete record of your credit behavior for the last 7-10 years. If you had a negative record, that would be reported. If you paid it off, that would be reported too but it wouldn't cause the original negative to disappear. Think about it like a college transcript: you can't go back and erase last semester's D, but you can work on getting an A next semester.

To improve your credit scores it is important to focus on the future, not the past. Add new positive data to your credit reports by using credit accounts responsibly each month. Make your payments on time, keep your debt balances low and avoid too many applications for credit. With time, your credit scores will improve and those old negative items will lose their impact. It is possible to improve your credit scores significantly this way even before the negative records expire in 7 years.

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