(Andrew Harrer/Bloomberg)

The job market may be growing at the fastest clip in 15 years, but many consumers are still trying to clear nasty scars from their credit reports.

The majority, or 56 percent, of consumers have subprime credit scores, according to a report released Thursday by the Corporation for Enterprise Development (CFED), a nonprofit that advocates for policy changes to help low- and moderate-income households. As a result, these consumers are often locked out of the lending markets. And if they are borrowing, chances are they’re missing  out on the lowest rates being offered to consumers with stronger credit.

“There are millions of Americans who are being excluded from the financial mainstream,” says Jennifer Brooks, director of state and local policy at CFED and lead author of the report. “They’re relegated to using fringe, often high cost financial products that trap them in a cycle of debt.”

Credit experts say the report is a reminder that even as many Americans are returning to work and earning steady paychecks for the first time in a while, repairing credit takes time. Late payments and delinquent accounts that are sent to collections, such as defaulted credit cards or a foreclosure, can stay on your credit report for up to seven years. Bankruptcy filings can stay on there for up to 10 years.

“In the world of consumer credit scoring, if you mess up, it’s a seven to 10 year penalty,” says John Ulzheimer, president of consumer education at CreditSesame.com, a credit management Web site.

It’s been seven years since the Great Recession officially started. But many of the people who fell behind on loan payments, lost their homes or filed for bankruptcy may still be waiting for those results to clear out of their credit reports, Ulzheimer says. “I think most people were able to keep their job for some period of time — they fought the fight,” he says. “If they did eventually lose their home, they probably didn’t do so for a few years.”

The researchers at CFED analyzed credit data from TransUnion, one of the major credit reporting agencies. The credit score information was based on the TransRisk score, which ranges from 100 to 934. Anyone with a credit score of 700 or lower was considered to be near prime or subprime, says Kasey Wiedrich, director of applied research for CFED.

The consequences of having a subprime credit score vary. For some consumers, it will mean having to pay higher interest rates for mortgages, auto loans and credit cards, Wiedrich says. Other consumers may not qualify for conventional loans at all, requiring them to turn to riskier and more expensive ways of borrowing, such as payday loans or car title loans. “There is a big range,” she says.

Some consumers who have thin credit files because they haven’t taken out many loans in the past were not included in the report. It’s also important to note that there are many types of credit scores and the TransRisk score is not the most commonly used by lenders, Wiedrich says. Banks and financial institutions can use different standards when assessing potential borrowers and setting the terms on loans, she adds.

Many of the people who fell behind on loans during the crisis may now be making steady payments and are on a path to rebuilding their credit scores, says Ulzheimer. Some of the issues that held them back initially, such as late payments or delinquent accounts, will count less toward their credit scores as time goes on.

People working to repair their credit scores should focus on making their payments on time each month, since recent payments will have a bigger effect than older payment records, says Gerri Detweiler, director of consumer education for Credit.com. Reducing the overall debt load will also make a difference.

“The two things that are going to have the greatest impact on your score are going to be your payment history and the debt that you’re carrying,” she says.

Consumers should also watch how much of their available credit is in use. Using less than 10 percent of available credit is ideal, but if that’s not attainable, people should use less than 25 or 30 percent of their credit.

It may also hurt someone’s credit scores if any one credit card has a high balance, Detweiler says, so consumers should try to keep individual credit card balances to below 30 percent of available credit. And people should be selective about how many credit cards they apply to, since credit inquiries can ding a person’s credit score and stay on their credit reports for up to two years, she says.

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