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Understanding Negative Credit Report Items

Welcome back, contestants, to the Game of Good Credit!

Do you have the right strategy to win? The game of good credit is easy to win with the right moves. And winning means you achieve a good credit score that helps you get approved with low rates. But some actions you take can set you back.

By law, filing for bankruptcy hits you with a penalty that sets you back 10 years from the date of filing. Except if you file for Chapter 13 – the bureaus stop the penalty after 7 years. This minimizes the setback so it’s easier to recover.

Things that happen outside your credit file can also affect your game – civil suits, court judgments and records of arrest can come up. These public records remain for 7 years from the date of entry OR as long as the current governing statute of limitations allows – whichever is longer.

Unpaid taxes can also set you back. A paid tax lien sets you back seven years from the date the lien was paid. On the other hand, if you leave a lien unpaid it can stop you in your tracks and remain indefinitely until you pay it off. That is, except in Experian’s game where the penalty for unpaid tax liens ends after 15 years.

Every time you pay on time it creates a positive space that stays on your credit forever and pushes you ahead. But each time you pay more than 30 days late, it sets you back 7 years from the date the payment was missed. And the longer a debt goes unpaid, the more it sets you back. If you let it go unpaid too long, the creditor writes off the account and changes the status to charge-off. Charge offs also set you back 7 years.

There is one exception to that rule… If you default on a federal student loan and then bring it current, any negative actions from the late payments disappear. But for all other debts, charge-offs are usually sold to collections, which creates ANOTHER trouble space that causes issues for 7 years. So, letting a debt slip into default is almost a double or triple whammy to your game.

However, don’t believe a collector if they say they have ways of ruining your credit game forever. That’s just not true. Nothing you do can get you kicked out of the credit game forever. Any penalty you encounter will only set you back. But you can offset these setbacks by taking positive actions that help you move forward. So even if your period of financial distress puts you back at Square One, you can start again and get right back in the game.

For more information on winning the Game of Good Credit, visit ConsolidatedCredit.org

How long you can expect negative items to stick around in your credit report.

All of the negative credit report items mentioned in the video can lead to a lower credit score. However, it’s important to note that these items aren’t always accurate. Negative items appear in your credit report for three reasons:

  1. You took an action that legitimately led the lender to make a report to the credit bureaus.
  2. The credit bureau has incorrect information about you. This can happen if a lender makes a reporting mistake or the credit bureau confuses you for another credit user.
  3. Someone stole your identity and they’re misusing credit in your name.

What caused a negative item also determines the method for its removal.

#1: What happens when the information is legitimate

There is no legal practice that removes legitimate negative items from your credit report early. The penalty periods described in the video stand unless a credit bureau changes its policy or Congress passes a new law. Any company that claims it can help you get around legitimate negative credit report items is a scam! Don’t sign up and report the company to the FTC immediately.

There is good news, though. The impact of negative items decreases over time until the item disappears completely. However, even before that you can offset the impact of a negative item in the past with positive actions now. Every payment you make on time is positive payment history. Minimizing credit card debt by paying it off as quickly as possible improves your credit scores, too. Manage your debts effectively and your score should improve even with negative items still present.

#2: What to do for errors and mistakes

If a negative item in your credit report is not accurate, you can dispute it. You inform the credit bureau of the error, by letter or online. The credit bureau attempts to verify the information they have. If they can’t verify it, they have to remove it. Most people know of this as “credit repair.”

The Fair Credit Reporting Act is the law that details how consumers can correct credit report errors on their own. The Credit Repair Organizations Act dictates how a third-party can make credit report disputes on your behalf. Only an attorney licensed in your state and authorized to act on your behalf can make disputes for you. If a company that doesn’t provide legal representation offers to “repair your credit” be cautious; it may be a scam.

Still, you can legally correct your own credit and even hire someone to make disputes for you. This can remove negative credit report items legally because the penalty shouldn’t be there in the first place.

#3: What to do if negative items signal identity theft

In some cases, you may report an account you didn’t open or collection account you didn’t incur to a credit bureau. Then the credit bureau comes back and verifies the item as correct. This may be a sign of identity theft  – i.e. someone using credit in your name.

When this happens, contact the fraud department for the creditor or lender that services the account. Work with servicer to close the account, since someone opened it fraudulently without your authorization.

If the account is a collection account, contact the collector. In some cases, they may simply have you confused with someone else. In other cases, it might show someone opened a credit line in your name and didn’t pay it back.

If you find identity theft through negative credit report items, follow the steps in Consolidated Credit’s Identity Theft Recovery Guide.