Negative Credit Items
Information appearing on a credit report is analyzed and calculated by many different resources. Usually, banks and credit unions are prime customers of credit bureaus, but so too are insurance companies, rental agencies and even employers. With so many inquirers, it becomes even more important to maintain a good credit history and a clean credit report. Negative credit items can mean big negatives in life.
The “Big Five” No-no’s
Many pieces of information and data appear on a credit report, but none have as negative an impact as late payments, closed accounts, charge-offs, foreclosure/repossession, and bankruptcy.
No-no #1 – Late Payments
Number one on the list of negative items is late payments. Whenever a consumer makes a payment to an account which is “past due”, the result usually shows up on their credit report. Some credit providers don’t report the past due payment until a second payment is due and unpaid also. This way, they don’t upset good customers who simply forgot to send a payment in and made it up the following month. However, under credit reporting rules, after a second payment is missed, all past due payments have to be reported.
No-no #2 – Closed Accounts
When a creditor feels a customer is not following the guidelines for receipt of credit, they can cancel the account and close it. When this occurs, the credit bureaus are notified that the account was closed by the creditor, not the consumer. This can reflect on the credit report in a very negative way. It means the creditor didn’t trust the consumer any longer and decided they just wanted to be paid off for the debt.
No-no #3 – Charge-offs
A charge-off occurs when a creditor decides a debt is not collectible and rather than carry it on their books as an overdue or past due debt, they will eliminate it from their reportable past due accounts. By charging-off the debt, the company gets an improvement in their accounts receivable report but that doesn’t mean the debt has disappeared, In most cases the debt is sold to a “debt buyer” who pays pennies on the dollar for the face value of the debt. By purchasing the debt, the debt buyer can now attempt to collect the debt (plus court fees, interest, late charges, etc) by contacting the debtor and taking them to court for the debt’s value plus fees.
No-no #4 – Foreclosure / Repossession
Any time a debt has “collateral”, it has “real” property to insure that if the debt is not paid by the borrower, the property can be sold, guaranteeing the debt will be paid. For mortgages, the collateral is the home itself. For automobiles, the car is the collateral. Foreclosing on a home takes it away from the borrower and returns the title to the property in the name of the mortgage lender. For automobiles, it is much the same, with the car’s title being made out to the lending institution. In either case, the one-time owner takes a major hit on their credit because they could not afford two of the most important assets people have in America. And if they can’t afford their home or their car, the big question becomes, what can they afford?
No-no #5 – Bankruptcy
When there’s much less cash than payments, a bankruptcy becomes all but inevitable. Consumers who file for bankruptcy must satisfy some very strict rules when it comes to being eligible and whether it is a Chapter 7 (total liquidation of assets to pay creditors) or Chapter 13 (allowing debtor to repay debts on a court-approved payment plan), the impact of the bankruptcy filing on the consumer’s credit report will be devastating. Bankruptcy can show up on a credit report for 10 years and can seriously affect a consumer’s eligibility for not only loans, but also for insurance, employment and even renting a home.
All Hope is NOT Lost
Even if a consumer has any of the above negative items on their credit report, there is still hope. Credit can be re-built. There are companies and tools consumers can look to which can help in the re-building process and provide the consumer a stable financial platform from which to operate. However, consumers must be prepared to pay the higher interest fees, additional service charges, and endure the lower credit limits they will encounter as they proceed through the re-building process. It’s do-able … just not easy.