There is a range of marks that remain on your credit report for different lengths of time. These marks also vary in terms of how they impact your credit score. Commonly referred to as derogatory marks, these are negative and long-lasting indications of credit history that show up on your credit report. These marks land on credit reports either by a creditor or lender reporting debts to the credit bureaus or they can add public records to your credit reports.
Examples of derogatory marks include: late payments, foreclosure, debts in collections etc. These marks can stay on your credit report from 7-10 years, damaging your credit score. This can result in not qualifying for credit cards as well as paying higher interest rates on loans (or credit cards). The impact of derogatory marks depends on different factors including: an individual’s credit score, the specific type of derogatory mark (minor or major) which also informs how long it stays on your credit report. It is helpful to understand common marks, the amount of time they will appear on your credit report, and how they impact your credit score.
- Missed payments: typically staying on your credit report for 7.5 years, missed payments are payments that are at least 30 days late. The later the payment, the greater the damage is to your credit score. This is why it is incredibly important to pay bills on time. If you expect to miss a payment, reach out to your creditor to discuss potential options that will not affect your credit score.
- Account charge off: if you do not or are unable to pay your debt according to the agreed-upon terms, the lender may charge the account off. This happens when an account has been in delinquency for a substantial amount of time. For credit cards, this is usually after 180 days of not making any payments. This stays on credit reports for 7 years.
- Repossession: this occurs when you cannot pay a debt associated with a specific item like a car. The creditor is able to take that item and do so without informing the individual. Repossessions stay on credit reports for 7 years.
- Collections: failure to make payments on any debts can result in the creditor sending the debt to a collector. Having debts in collections stays on credit reports for 7 years. It is important to first verify that the collection agency now owns the debt (rather than the creditor) and then make a plan to pay it off. Though the impact of collections on credit scores diminishes over time, these paid debts can still impact credit scores depending on what scoring model is being used.
- Student loan default: like other missed payments, late student loan payments are marked on credit reports after 30 days. Federal student loans can go into default after 270 days of no payments. The government is then able to collect on this debt in a variety of ways: garnishing wages, through social security benefits, tax refunds, etc. This remains on your credit report for 7 years.
- Bankruptcy: The type of bankruptcy filed informs how long it will stay on your credit report. A Chapter 7 bankruptcy filing stays on your credit report for 10 years – making this the longest-lasting mark. A Chapter 13 bankruptcy shows up on your credit report for 7 years. It is important to start rebuilding credit immediately after completing the bankruptcy process.
- Foreclosure: failure to make mortgage payments can lead to the bank seizing one’s home. A foreclosure remains on credit reports for 7 years.
It is important to regularly access your credit report and assess the marks. If you identify any errors, be sure to file a dispute with the credit bureaus to have any errors or misinformation removed. Additionally, start taking the steps to rebuild your credit as soon as possible. By practicing different credit-building strategies, you can start seeing improvement in your credit score relatively quickly. This includes paying bills on time, dealing with debts in collections, using a secured credit card, becoming an authorized user on a credit card, etc. The impact of derogatory marks lessens over time, coupled with rebuilding your credit score, can contribute to greater financial stability.
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