Bad credits are a result of negative information in your credit report. Negative items such as previous late payments and high balances or other items indicate that you may be a potential risk if you borrow more money. This negative information is added to your credit report by creditors you have accounts with or through public records you have in your local or state court.
Since your credit score is calculated based on the information in your credit report, bad credits can negatively affect your credit score. Many credit scoring providers such as myFICO and Credit Karma will provide personal information about the items that affect your credit score.
Types of Bad Credits
Different bad items affect your credit score in various ways – some items are more significant than others. For example, a single late payment will impact your credit score, but not to the extent that bankruptcy will, which can significantly affect your credit score. Many bad items will cause your credit score to drop.
Here are the types of bad credits that can appear in your credit report:
- Late payments resulting from overdue credit card bills and loans for more than 30 days
- Settlements resulting from debts that are more than 180 days overdue and have been written off as uncollectible debts
- Debt collections resulting from debts that have been sold or assigned to a third-party collection agency
- Evictions resulting from missed mortgage payments
- Vehicle repossession resulting from missed car loan payments
- Debt settlements resulting from an agreement between you and the creditor to reduce the outstanding balance and eliminate the remainder
- Bankruptcy resulting from the legal process to discharge your debts in court
Warning: Having bad credits does not automatically mean your applications will be denied, but you will face greater difficulty in getting approval for these items on your credit report. If your application is approved with bad credits, you may pay higher interest rates, and you may be required to make a down payment or provide collateral, or both.
Duration of Bad Credit
Bad credit can haunt you for a long time. Some types of negative information – such as bankruptcy – can remain on your credit report for up to 10 years.
Most other negative information – such as late payments and debt collection accounts – will remain on your credit report for only seven years. Typically, these items will be automatically removed from your credit report once the reporting time period expires.
Only accurate, verifiable, and complete information can be included in your credit report. You can dispute a bad or outdated item with credit bureaus to have it removed from your credit report.
In some cases, removing negative information from your credit report can improve your credit score, but this depends on the rest of the information in your credit report.
Paying Off Bad Credits
Paying off bad credits that remain on your credit report may be beneficial. Your credit score may not rise immediately after paying off a negative item. However, most lenders will not approve a mortgage application if you have outstanding negative items on your credit report. Be sure to verify the accounts before sending payment, especially with debt collection accounts.
Important:
Paying off a negative item does not remove it from your credit report, but your credit report will be updated to show that you have settled the balance.
You may be able to change a negative status to show that you are current by catching up on past due accounts. This can be done with accounts that are several months past due and have not yet been settled.
Check your latest billing statement or contact your creditor to find out how much you need to pay to bring the accounts current again. In some cases, you may be able to make the minimum payment on time for several months to get your account current again.
Tips for Overcoming Bad Credit
Your credit scores benefit from having positive information, so your credit score may start to improve before the bad credit is removed from your credit report if you are paying other accounts on time.
Your recent credit history affects your credit score more than old bad credit, so having open accounts with on-time payments will help improve your credit score.
You may not be able to obtain excellent credit until the bad credit is completely removed from your credit report. However, with good credit, you will still be able to qualify for many credit cards and loans.
Frequently Asked Questions (FAQs)
Can I get a mortgage with a negative mark on my credit?
Ultimately, your lender will look at your overall credit score when deciding whether you qualify for a loan and what terms they will offer you. If you have enough negative marks that bring your credit score below 600, you may have difficulty qualifying for certain mortgages. However, mortgage options are available for borrowers with low credit scores, such as Federal Housing Administration (FHA) loans, U.S. Department of Agriculture (USDA) loans, and Veterans Affairs (VA) loans.
How can I dispute a negative mark on my credit report?
If you find any negative information in your credit report that you believe is inaccurate, you should dispute it directly with the credit bureau that carries the report. You can submit disputes by mail or over the phone, and credit bureaus typically take 30-45 days to respond. Be sure to provide any necessary evidence to support your claim that the negative mark is inaccurate.
Was this page helpful?
Thank you for your feedback! Please let us know why!
Sources:
- Experian. “What Derogatory Means on Your Credit Report.”
- Credit Sesame. “How Does Bankruptcy Affect Your Credit? Top 7 Questions Answered.”
- Federal Trade Commission. “Fair Credit Reporting Act.”
- Experian. “Deleting an Account Did Not Raise Credit Score.”
- TransUnion. “How Long Does It Take for a Credit Report To Update?”
- myFICO. “The 5 Secrets of Excellent Credit Score Individuals.”
- Consumer Financial Protection Bureau. “If a Credit Reporting Error Is Corrected, How Long Will It Take Before I Find Out the Results?”
Source: https://www.thebalancemoney.com/what-does-derogatory-credit-means-4174981
“`
Leave a Reply