Negative Credit Information

Your credit score is likely to be hurt when negative information shows up on your credit report. There is a varying degree of impact from late payments, collection accounts, charge-offs and bankruptcies.

Negative information on your credit report tends to stick around for awhile, and could make it harder to qualify for new financing (such as loans and credit cards). The good news is: they don’t stay on your report forever.

It can be difficult to understand how credit scores work. One puzzling factor is that specific items on your credit report (credit score factors) are not worth a preset number of points.

For example, you won’t automatically lose 20 points, or any set number of points for a 30-day late payment that is newly showing up on your report. You could just be earning fewer points, which would result in a lower score the next time your credit score is calculated.

The credit scoring models like FICO and VantageScore consider all of your credit report information at once. Someone with a clean credit report who receives a new collection account might have a larger decrease in their score than someone who already has blemishes on their credit. However, the person with the cleaner credit report would still have a higher score overall.

Two other factors have a role in how negative information impacts your credit score: age and severity. As for age, a more recent late payment is likely going to damage your score more than a late payment that is several years old.  As for severity, a 90-day late payment tends to be more damaging than one that is 30 days late.

Negative information does the most damage to your credit score when it first appears on your credit report. The derogatory information will hurt your score as long as it is reporting, but becomes less pronounced over time, especially if you have avoided adding more derogatory items.

Any item that is reporting on your credit report is likely to affect your credit score for good or bad. The Fair Credit Reporting Act (FCRA) is a federal law that regulates the three major credit bureaus, as well as others. The maximum shelf life of derogatory information is seven to ten years. There are some exceptions to this rule.

Examples:

7 Years

• Late Payments

• Collection Accounts

• Medical Collections

• Charge- Offs

• Chapter 13 Bankruptcy

10 Years

• Chapter 7 Bankruptcy

• Accounts closed in good standing

2 Years

• Credit inquiries

Indefinite

• Defaulted federal student loans

Incorrect & Outdated Information

There isn’t much you can do about an accurate but negative item on your credit report. You can however, talk to the creditor about a goodwill removal (which is not always granted). Most negative items will keep showing on your credit report as long as the law allows.

If you have an item on your credit report that is inaccurate or it has been reporting for longer than the FCRA permits, there are a few actions you can take.

• Dispute: You have the right to dispute any incorrect or outdated information on your credit report. You can send disputes online or by mail, but the Federal Trade Commission (FTC) recommends using certified mail for dispute letters. This method allows you to verify that your letter was received and that a real person is reviewing your dispute. Online disputes are computerized.

• Complain: Along with disputing the incorrect information on your credit report, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).

• Legal Action: If disputes and complaints aren’t fixing your issues, you might consider talking to an attorney specialized in the FCRA. An attorney can help you discover if your rights have been violated. They will advise you on steps you may not have taken and will initiate legal action when necessary.

Negative information on your credit report has the potential to damage your credit score and make it harder to qualify for financing and applying for any type of credit. It is best to avoid issues like late payments charge-offs, and collection accounts. If you do happen to make a mistake or have an error in your credit report, all hope isn’t lost. You can still bounce back and improve your credit for the future.

Only One-Third of Americans Checked Their Credit This Year

CompareCards have conducted a survey for the third year in a row in August 2020 following the massive data breach from Equifax four years ago. Only thirty-three percent of Americans have checked their credit reports in the past year. This is a concern since there have been an increase in credit card fraud attempts during the Covid-19 pandemic. In 2019 39% checked their reports and in 2018, just 37%. It is most crucial to be checking your reports at this time because it has never been easier. For the past four months until April 2021, consumers are able to check their credit reports for free once week, instead of just once a year through AnnualCreditReport.com.

Consumers aged 75 and older are at most risk for credit card fraud and only 20% of this age group has reviewed their credit report in the last year. Cardholders are taking less action to prevent identity theft. Here are some steps to take to prevent identity theft:

• Review online banking and credit cards often

• Check your credit score

• Activate alerts via text, email, etc to inform you when changes are made

• Review your credit report

• Change passwords to your banking and credit card sites

• Change the PIN on your ATM card

From a group of the surveyed consumers, 41% of cardholders were unaware that they had the option to check their credit report for free weekly due to the pandemic. Twenty-eight percent of those surveyed admitted that they did not plan to take advantage of this free allowance. Checking your credit report every week isn’t necessary but checking it once a month will put your mind at ease and keep you up to date and it won’t do any harm. Once you take a look at the reports one or two times, it will give you a good idea of what it looks like and you will have an easier time finding mistakes and errors, if they were to occur. Consumers who don’t have a credit card or a loan are more likely to feel that they do not need to review their reports as often. There is too much fraud out there to not keep tabs on your file. 

Only half of credit or debit cardholders check their credit score each month and a third of those admit that they do not always review their card or bank statements to ensure accuracy. Women are dropping the ball on checking their reports with only 41% doing so monthly as opposed to men at 59%. Breaking down to different generations, Gen Xer’s are best about checking their scores followed by Millenials. 

The fatigue of the pandemic may be distracting from the focus of identity theft. There has been an economic downturn and rampant job loss which is understandable why some consumers may be more focused on other areas of their personal and professional lives than they are of identity theft. More people are at home more often, so instead of binging out on Netflix during downtimes, we could be keeping up to date on identity theft. 

Most people are hesitant about providing their personal information online but nearly 47% of people with a credit or debit card provided their entire social security number in an online form in the past month according to the survey. In 2019 it was 40%. This increase may have occurred due fluctuations in the job market and people applying for unemployment and onboarding at new jobs online. Even providing a partial SSN causes concern. This puts consumers more at risk for identity theft, which makes checking your reports and statements a priority. 

Seventy percent of cardholders have reported using the “sign in with “Facebook” feature to sign up or log in to various websites. While this is a convenience, using your Facebook account to log into other multiply accounts can be problematic. There has been security concerns about Facebook’s ability to protect personal data. The information you are giving has an increased risk of being exposed which is a major target for hackers. Facebook is a signal site that contains information about you that are useful to hackers. Facebook has a past for not keeping data safe so it is important to proceed with caution when you login to other accounts or webpages. 

Nearly half of cardholders (47%) were victims of a data breach within the last year and 14% of them experienced this harm more than once. Consumers may want to take stronger steps to protect their identity such as:

• Freezing your credit- With a credit freeze, or security freeze, you can restrict access to your credit reports and prevent others from opening new credit-related accounts with your information. You will still have access to your credit reports during the freeze and your credit score will not be affected.

• Sign up for alerts - Many companies are on the market to provide services that monitor for identity theft as well as keeping an eye out for Social Security number scanning. 

• Create safer digital habits - You can set calendar reminders to change important passwords often and learn to recognize the signs of phishing emails and other online scams. It is important to remain cautious when providing personal and financial information online and you may even want to invest in security software for electronic devices. 

Most of all it is important to realize that you, as a consumer, have your financial health and security in your own hands. Nobody cares as much about your credit and money as much as you do. It is vital that you protect your personal information and finances because no one else can do it for you.