Credit reports are made up of virtually every credit-related action a person takes, the Federal Reserve Bank of San Francisco explains. This includes everything from obtaining new loans and credit cards and paying them on time, to missing payments on existing accounts, to having a car repossessed or filing for bankruptcy. Negative actions bring consequences such as difficulty getting accounts, but there are limits on the time bad items can appear on credit reports.
Description
Negative credit report items are things that show up on TransUnion, Equifax and Experian reports because of financial mismanagement. Some are minor, like occasional late payments. Skipping payments is more serious, and Liz Pulliam Weston of MSN Money warns that lenders often charge off such accounts after six months of nonpayment, adding another blemish to the report. Court actions such as lawsuits by creditors, tax liens and bankruptcies are also bad.
Time Frame
Delinquency-related items and public records of financial judgments stay on credit reports for seven years from the date of the first late or skipped payment, according to the Experian credit bureau. Unpaid tax liens show up for 15 years, but they disappear in seven once they are satisfied. Chapter 7 and 11 bankruptcies, the two most common types filed by consumers, remain for 10 years. Entries are automatically deleted from credit bureau files when the appropriate time period ends.
Effects
Negative items have a cumulative effect on a consumer's ability to open credit accounts or borrow money. One or two late payments or old collection accounts do not carry much weight if the recent records are all good. Numerous recent negatives warn lenders that the person may be overextended and unlikely to repay new debts. Loan and credit card applications are likely to be turned down or offered with excessive interest rates. The FICO credit score firm states that bad credit report entries also impact a consumer's three-digit credit score, which indicates likelihood of repayment and is used by many lenders to evaluate applications.
Considerations
Consumers have a right to check their credit reports at no cost so they can see how many negative items the files contain. Ordering the reports through annualcreditreport.com is recommended, according to the Federal Trade Commission (FTC), because it is the only government-authorized site from which to order.
Solution
Some negative items get erased before the end of the reporting period. Any entry that contains erroneous information is a candidate, according to the FTC. Bad credit items simply need a misspelling, incorrectly reported amount, wrong date or other minor issue to be disputed under the Fair Credit Reporting Act. Disputes can be done online at no charge on the credit bureau websites. Each bureau has 30 days to investigate the challenge. If the lender does not respond or cannot provide verification that the entry is correct, the bureaus are forced to erase the item immediately.
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