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9 Negative Items That Stay on Your Credit Reports

Positive information about your finances stays on your credit history for a long time--but the bad news is that negative information stays there too! Laura covers nine negative items that can appear in your credit history and for how long.

By
Laura Adams, MBA
9-minute read
Episode #539
How Long 9 Negative Items Stay on Your Credit Reports

6. Collections

When a creditor charges off a debt, they typically don’t stop trying to collect it. The next step is to turn a past due account over to a collections agency that either buys it or gets paid a cut of what they collect.

Your account status changes to “in collections” or shows a transfer to a new creditor. Or you may see two entries on your credit report for the same account: one with the original creditor that shows a zero balance and one with the new creditor for the amount owed.

A collections account gets reported for seven years from your first delinquency date with the original creditor. As you can probably guess, even paying off an account in collections doesn’t make it vanish. It remains on your credit report for seven years, unless the law in your state requires a shorter period.

However, just like with other negative items, the more time passes after paying off a bad debt, the less it affects your credit scores. Having a paid collection account can be viewed more favorably than one you never paid.

In fact, some newer credit scoring models may exclude paid collections and medical bill collections in score calculations, even if they still appear on your credit reports. That makes it more likely to get approved for a large credit purchase, such as a home or car, even with medical bills or a paid collection in your past.

Some newer credit scoring models may exclude paid collections and medical bill collections in score calculations, even if they still appear on your credit reports.

7. Settlement

A settlement is an account that you agree to pay for less than the full amount owed. It’s not as negative for your credit as an unpaid account, but isn’t as good as paying as you originally agreed.

A settlement stays on your credit report for seven years from the reported date or seven years from the date the account first became delinquent. As with other negative items, a settled account hurts your credit less as it ages.

8. Voluntary surrender

If you take out a loan that’s secured by property, such as real estate or a vehicle, you agree that if you don’t pay the loan, the lender can take the asset to help repay your debt. But if you have a financial hardship and decide that you want to return the property to the lender, that’s called a voluntary surrender.

For example, some people would rather give back their car or boat instead of forcing the lender to pursue a repossession. Problem is, you typically still owe the debt, even if you return the property to your creditor.

If a lender can sell the property, their profit is typical less than what you owe. In that case, you’re still responsible for the difference, which is known as a deficiency balance. The lender may send the deficiency account to a collections agency. As I previously mentioned, a collection account is listed on your credit reports for seven years from the date you became past due with the original creditor.

And if the creditor goes a step further and takes legal action to collect the deficiency with a judgment against you, as I previously mentioned, it appears in the public records section of your credit reports for a maximum of seven years.

9. Foreclosure

If you’ve had many months of late payments on a home mortgage, your lender can use foreclosure to take ownership of your property to help repay your debt. Once proceedings begin, the account is updated to show a foreclosure status.

Like most negative items on your credit report, a foreclosure is listed for seven years from the original date you became past due. It has a significant negative effect on your credit scores during that time, even if you get caught up on loan payments.

Like most negative items on your credit report, a foreclosure is listed for seven years from the original date you became past due. It has a significant negative effect on your credit scores during that time, even if you get caught up on loan payments.

If you can’t pay a mortgage as agreed, doing a “short sale” may be slightly less harmful for your credit. A short sale of real estate is when you sell it for less than you owe, with the lender’s approval. However, a lender may still hold you responsible for a deficiency balance.

If you negotiate a short settlement, where a mortgage lender agrees to accept less than the original amount owed, it’s shown on your credit report as “settled” for seven years.

How Negative Items Are Removed from Credit Reports

Once the reporting period for a credit account or a public record item has expired, the credit bureau automatically deletes if from your file. You don’t need to submit a request for it to be removed, but it’s a good idea to double check by pulling a copy of your credit reports.

You may be wondering if you can negotiate with a creditor or collections agency to remove a negative (but accurate) item faster. In most cases, this is against their agreement with the credit bureaus to report accurate and complete data about you.

While it doesn’t hurt to ask for negative information to be deleted as part of a debt settlement, it doesn’t typically happen unless there are extenuating circumstances, such as a billing error.

To sum up, just about every negative item on a credit report remains there for seven years. The exceptions are a Chapter 7 bankruptcy which remains for 10 years, and an unpaid tax lien which can stay 10 years or longer, depending on the laws in the state where you live.

So, do everything in your power to keep black marks off your credit history in the first place and protect your credit.

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlersbook is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.