Negative information can turn a good credit score into a poor score very quickly. Paying off accounts with negative information gives you peace of mind and some optimism as you move on from your mistakes. However, these good vibes don't necessarily translate to an improved credit score.
Credit Score Basics
Your credit score is a snapshot of your credit history. It lists all of your open and closed credit accounts as well as pertinent information about these accounts, such as your payment history, your current and highest balance and any collection activity or public records. Each of these factors plays an important role in determining your credit score, which can frequently change.
Effect of Negative Information
Credit scores take years to build up, but can easily be destroyed with just a few bad decisions. For example, making one payment 30 days past due can lower your FICO credit score by more than 100 points. Allowing a card to reach or exceed its limit can cause a drop of nearly 50 points. While these items can and should be avoided, they do happen and they can hurt your credit for years.
Paying Off Negative Items
If you allow a card to go more than 30 days late, but then make the payment, your credit score won't receive an immediate improvement. Your account will be considered current; however, your credit report will still show your late payment, possibly for the next seven years.
Avoiding Negative Items
It's best to avoid negative reports altogether. If you think you might be late on a payment, call your credit card company or bank as soon as possible and try to work something out. Even if you're late by a couple of weeks, it's better than going 30 days past due and getting reported. The same principle holds true if you're in fear of foreclosure or collections activity. Communication with the lender can help thwart problems before they arise.
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