Negative Items on Credit Report

Just 1 Negative Item Can Decrease Your Credit Score by 110 Points*

negative-items

There is a lot of information on your credit reports. This includes personal information, such as your name, address, and place of employment, as well as your credit history, which is made up of credit accounts. These accounts include things like credit cards and loans. Usually, the more extensive your credit history, the better.

Not all information on your credit reports is positive or even neutral. If you’re late making payments on accounts, then this has a negative impact on your credit reports and score. Lenders are less likely to approve your applications if they see late or unpaid accounts. Types of negative items include late payments (30, 60, and 90 days), charge-offs, collections, foreclosures, repossessions, judgments, liens, and bankruptcies. We’ll cover what each one of these means, and how they can impact your credit reports.

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How Much Will a Negative Item Hurt my Credit Score?

According to CreditCards.com and CNNMoney, even a single negative on your credit could cost you over 100 points. Negative items on your credit could cost you thousands of dollars in higher interest rates, or you could be denied altogether.

negative-items-score-impact

Late Payments

Late payments occur when you’ve been 30, 60, or 90 days late paying an account. Although you don’t want late payments on your credit reports, an occasional 30 or 60-day late payment isn’t too severe. But you don’t want frequent late payments and you don’t want late payments on every single account. One recent late payment on a single account can lower a score by 15 to 40 points, and missing one payment cycle for all accounts in the same month can cause a score to tank by 150 points or more.

Payments 90 days late or more start to factor more heavily into your credit score, and consecutive late payments are even more harmful to your score, as each subsequent late payment is weighted more heavily. Sometimes, creditors will report payments as late as 120 days, which can be almost as severe as charge-offs and collections. Late payments can be reported to the credit bureaus once you have been more than 30 days late on an account and these late payments can stay on your credit reports for up to seven years.

Can Late Payments Be Removed from Your Credit Reports?

Although late payments (and most other negative information) can be reported for seven years, it doesn’t have to be. What this means is that creditors have the choice to report your late payments, and other negative accounts, for less than seven years.

How Late Payments Can be Removed

When it comes to late payments, there are a few of ways that they can be removed:

  1. Goodwill Adjustment: A Goodwill Adjustment is something you can use for late payments. Creditors are more likely to take this type of request into consideration for a 30 or 60-day late payment than for something more severe like a 90-day late payment. In order to request this, you can write a letter to your creditor asking them to remove the line item as a gesture of goodwill. Some things you can bring up for their consideration are your longstanding relationship and the intention to continue that relationship, the intention to never repeat the error, and the fact that this is one minor infraction in an otherwise clean history with them. Remember though that these Goodwill requests carry weight only if you don’t have any previous late payments, and that the creditor is usually more willing to adjust the account if you have been a customer with them for a longer period of time.
  2. Dispute with the credit bureaus: Under the Fair Credit Reporting Act (FCRA) you can dispute late payments with the credit bureaus. When you file a dispute with the bureaus, the bureaus then ask your creditor to review your account. If the creditor doesn’t provide the bureaus with the information or verify the accuracy of what’s being reported, then the bureaus may choose to remove the information
  3. Set up automatic payments: Although this doesn’t allow previous late payments from being removed, it can prevent your accounts from being paid late in the future. Setting up automatic payments is convenient for you, and you don’t have to remember every single due date for all your bills.

Charge Offs

What is a Charge Off?

A charge off is when a creditor writes off your unpaid debt. Typically, this occurs when you have been 180 days late on an account. Charge offs have a severely negative impact on your credit, and like most other negative items can stay on your credit reports for seven years. When an account is charged off, your creditor can sell it to collection agencies, which is even worse news for your credit.

Creditors see a charge off as a glaring indication that you have not been responsible with your finances in the past and cannot be counted on to fulfill your financial obligations in the future. When creditors see a charge off on your credit reports, they are more likely to deny any new applications for loans or lines of credit because they see you as a financial risk. If you do qualify, this can mean higher interest rates. Current creditors can respond by raising your interest rates on your existing balances.

Will Paying a Charge Off Increase My Credit Score?

When an account is charged off, you are still financially responsible for it. If you have a charge off, and you know that it’s accurate and you owe the debt, then you may consider paying it off. If you pay a charged off account prior to the account being sold to collections, you may be able to prevent further damage to your credit because a collection won’t be reported on top of the charge off. Paying the charge off though does not usually impact your credit.

Once an account has been paid, the creditor can still report the charge off for the full seven years on your credit reports, although they’ll usually update the account to show as paid. In some cases though, creditors are willing to negotiate “payment for deletion,” where once the debt is paid off, the creditor can request the credit bureaus to remove the account. Remember though, this is not something that creditors are obligated to offer, and is up to the creditor’s discretion.

Collections

Collections are the most common types of accounts on credit reports. About one third of Americans with credit reports have at least one collection account. Over half of these accounts are due to medical bills, but other accounts like unpaid credit cards and loans, utilities, and parking tickets can be sold to collections.

Collections arise from debts that are sold to third parties by the original creditor if a bill goes unpaid for too long. They have a severe negative impact on your credit and can stay on your reports for up to seven years. When potential creditors see collections on your credit reports, it can raise flags and cause them to think that you won’t pay your debts.

How Can I Deal with Collections?

Dealing with collections can be different from dealing with creditors on most other negative accounts. Collection agencies make their money by buying debts from creditors at a reduced amount and then collecting on them from the debtor for the full amount. Because these agencies make their money by collecting unpaid debts, they’ll sometimes go to great lengths by calling you, sending you letters, and sometimes even calling your family members or employer.

Luckily, you do have rights under the Fair Debt Collection Practices Act (FDCPA). This prevents collection agencies from making excessive phone calls, threatening you, and from calling you at unreasonable times (before 8:00 AM and after 9:00 PM). You also have the right to ask that they don’t contact you by telephone, although they still may contact you in writing, and you also have the right to dispute the debt in writing within 30 days of when they first contact you. If the agency can’t verify the validity of the debt, then they can’t continue to collect on it.

Do Medical Bills Have the Same Impact as Other Collections?

Medical bills are the most common types of accounts that are sold in collections. With most credit scoring models, they have the same impact on your credit score as other types of collections. However, recent credit scoring models are changing that because medical bills are often a poor indicator of an individual’s creditworthiness.

Because of this, FICO’s most recent scoring model, FICO 9 ignores paid medical bills. Unpaid medical bills carry less weight. Your FICO score is the credit score that most lenders use in making decisions when you apply for credit. This is good news for people who only have medical bills on their credit reports. However, not all lenders use FICO 9 and may use previous versions of the FICO model, which means that medical collections can still carry the same weight when applying for credit.

How do I Know I Have Collections Reporting and What Can I Do About It?

The best way to know whether you have an account in collections is by monitoring your credit. Many consumers are unpleasantly surprised when they’re turned down for a loan because of a collection on their credit reports that they didn’t know about. In order to keep track of what’s on your credit, you can pull your free annual credit reports, or sign up for a credit monitoring service.

Once you know you have collections on your reports, you have different options as to what you can do. You can wait for the account to come off in the seven-year statutory reporting period. You can dispute the account with the collection agency and the credit bureaus, either by yourself or with the help of a credit repair service. Or you can pay it. Remember though, like with charge offs, paying the account doesn’t remove the collection from your credit reports, unless the creditor agrees to do so.

Foreclosures

Homeownership can make or break a credit report. Failing to pay your mortgage for too long will result in foreclosure proceedings, often resulting in legal action and eviction. It also results in long-term credit damage. A foreclosure will devastate your credit score for up to seven years, and you’ll have a difficult time securing another mortgage in the meantime.

As an alternative to a foreclosure, some people opt for a deed-in-lieu of foreclosure, or a short sale. These still have a negative impact on credit and heavily impact your chances of being able to buy a home. Some things make foreclosure necessary, such as job loss, but it should be carefully considered.

What is a Foreclosure?

A foreclosure is a legal proceeding that is initiated by a mortgage lender when a homeowner has been unable to make payments. Usually, a lender will file a foreclosure when a homeowner has been three months late or more on mortgage payments.

When a lender decides to foreclose, they begin by filing a Notice of Default with the County Recorder’s Office, which begins the legal proceedings. If a foreclosure goes through and a homeowner can’t catch up on payments, then they are evicted from their home, and the foreclosure is reported to the credit bureaus.

What is a Short Sale?

Instead of going through a foreclosure, a homeowner can choose to do a short sale. This is when a homeowner agrees with the bank to sell their home for less than what is left on the mortgage. Although the bank receives less than what is less on the loan, this can be beneficial for the lender because the foreclosure process is costly and time-consuming. It also benefits a homeowner because depending on the short sale, the impact on the credit may not be as severe. The credit score still drops, and it will often show as a settlement, which still has a negative severe impact, but the score shouldn’t drop as much as it does with a foreclosure, and it may be easier to buy a home in the future.

Repossessions

A repossession is a loss of property on a secured loan. Secured loans are where you have collateral, like a car or a house, and the loss occurs when the lender takes back the property because of the inability to pay. Usually, when this occurs, the lender will auction off the collateral to make up for the remaining balance, although it doesn’t usually cover the remaining balance.

When there is a remaining balance, the creditor may choose to sell it off to collections. A repossession has a severe negative impact on credit because it shows a debtor’s inability to pay back a loan. Usually, a repossession follows a long line of late payments and can knock a lot of points off a credit score.

Voluntary Repossessions

If someone is unable to make monthly payments, they can turn in their collateral to their creditor or dealership. This is called a voluntary repossession. The difference is that rather than the property being forcefully taken back by the creditor, it is voluntarily surrendered by the debtor. Like a regular repossession, the creditor then sells the property and puts the money from the sale toward the balance.

Unfortunately, a voluntary repossession still shows up as a repossession on credit reports, and still has a negative impact for seven years, but the relationship with the creditor may end up being better. Also, regardless of whether it is a voluntary or regular repossession, there may still be a remaining balance after the collateral is sold, meaning the creditor can sell the account to collections or sue for it. A repossession can also make it more difficult to qualify for a new loan, and you may have to wait, or find a co-signer.

What Are Some Alternatives if I Can’t Make Payments?

Before allowing late payments to escalate to a repossession, there are other options:

  • Sell your property: If you can find someone else to sell your property to, this may get you out of your loan. When a repossessed property is sold, it’s sold at auction, usually for a much lower price. Selling the property to someone else may help you pay off your loan more easily.
  • Refinance: If your credit is good enough, then refinancing your loan for a lower interest rate can be helpful. Refinancing can also help lower your monthly payment, although it may extend the term of your loan.
  • Ask for a break: Sometimes lenders are willing to work with you, especially if your financial hardships are short-term. Your lender may allow you to skip one or two payments. Interest will still accrue, but this can be an option to help you get your finances in order. Communication with your lender is key.

Judgments

Judgments are public records that are also referred to as civil claims. A judgment can be taken out against a debtor for an unpaid balance. A creditor or collection agency can file a suit in court. If the court rules in favor of the creditor, a judgment is taken out against the debtor, and put on their credit reports. This, like many other negative items has a severely negative impact, and like most other negative items can be reported for seven years.

Judgments are also another indication that a person won’t pay their debts. Lawsuits are time-consuming and costly, so they are something that creditors potentially want to avoid. When a judgment is filed though, it can impact more than credit. The judge may allow the creditor to garnish a debtor’s wages, which can heavily impact finances.

How can I Handle a Judgment?

Before a creditor can take a judgment out against you, you must be notified and receive a summons to court. This is an opportunity to raise a defense against a creditor trying to take out a judgment against you. If you’re unsure what to do, then you can consult a local consumer rights attorney for legal advice.

When a judgment is taken out and goes unpaid, it is considered “unsatisfied.” Once a judgment is paid however, it is considered “satisfied.” Paying a judgment does not remove it from your credit reports, however, they will reflect that the judgment was satisfied.

Other ways the court can rule on a judgment are to vacate or dismiss them. When a judgment is vacated, it means that the case was canceled. A dismissed judgment means the case was dropped. These are both usually beneficial for the person the creditor is trying to sue.

How are Judgments Reported Now?

Effective July 1st, 2017, the three major credit bureaus (Experian, TransUnion, and Equifax), made changes to how judgments and liens are reported. These changes were meant to be beneficial to consumers. In order for a judgment or lien to be reported by the credit bureaus, the following information must be included on the credit reports:

  • Name
  • Address
  • Social Security Number/Date of birth

If the information is missing or incomplete, then it may result in a judgment being taken off a consumer’s credit reports. Additionally, the bureaus must check every 90 days to make sure the information is accurate – if not, it can also result in a removal. This has already benefitted millions of consumers.

Liens

In most cases, liens are the result of unpaid taxes – whether it’s at the state or the federal level. For a federal tax lien, the IRS can place a lien against your property to cover the cost of unpaid taxes. Tax liens can make it difficult to get approved for new lines of credit or loans because the government has claimed to your property. What this means is that if you default on any other accounts, your creditors have to stand in line behind the IRS to collect.

Unpaid liens can stay indefinitely on your credit reports. Once they have been paid, however, they can stay on your reports for up to seven years. Like judgments though, the credit bureaus are strictly regulated on how they can report liens because they are also public records.

How Else Can a Tax Lien Be Removed from My Credit Report?

When a federal tax lien is paid off, a person can file an “Application for Withdrawal of Filed Notice of Federal Tax Lien (IRS form 12277). When the IRS approves this application, the lien can be removed from credit reports sooner than the seven years.

Bankruptcies

Bankruptcy is extremely damaging to credit. Individuals who file for bankruptcy are those who have too much debt, and not enough money to pay it. They likely have had overdue accounts for a long period of time and in some cases loss of income that prevents them from being able to pay any of their bills. Bankruptcies can also arise from huge medical debt.

Whether or not file for bankruptcy is a difficult decision, and doing so can impact your credit from seven to ten years, depending on the type of bankruptcy you file. When a bankruptcy is filed, debts are discharged and the individuals filing are released from most of their previously incurred debts (there are some exceptions). This option can give people a “clean slate” from debt, but creditors don’t like to see it on credit reports because it can imply that an individual won’t pay their debts.

What Happens to Accounts Included in Bankruptcy?

Simply put, when filing for bankruptcy, and individual has to list out all of their debts. When debts are discharged in a bankruptcy, they are listed on credit reports as “included in bankruptcy,” and can stay on credit reports for up to seven years, regardless of the type of bankruptcy filed.

What Items Can Be Included in Bankruptcy? What Items Can’t Be Included?

Most accounts can be included in bankruptcy such as (but not limited to):

  • Credit cards
  • Home/auto loans
  • Medical bills
  • Collections
  • Utility bills

Other accounts cannot be discharged through bankruptcy including:

  • Child Support/alimony
  • Most student loans
  • Unpaid taxes/debt owed to government

What are the Different Types of Bankruptcies?

Lexington Law has over a decade of experience helping hundreds of thousands of clients with credit repair. We’ve seen millions of removals of the different types of negative accounts on our clients’ credit reports. We use our knowledge and experience to fight for your right to a fair and accurate credit report. Give us a call today for a free credit report consultation.

Can Lexington Law Help Me with My Negative Items?

Lexington Law has over a decade of experience helping hundreds of thousands of clients with credit repair. We’ve seen millions of removals of the different types of negative accounts on our clients’ credit reports. We use our knowledge and experience to fight for your right to a fair and accurate credit report. Give us a call today for a free credit report consultation.

*https://blog.equifax.com/credit/can-one-late-payment-affect-my-credit-score/

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