Your credit report packs a hefty punch that can help you access credit or destroy your prospects for many years. The impact of negative information on your credit report may include the inability to qualify for a mortgage or other loans, rejected applications for credit cards and an unhelpful effect when applying for a job or an apartment rental.
The Big Five negatives (not to be confused with the African Big Five) that can mar your credit report may linger for seven years or longer.
We’ll explore these five misfortunes and the length of time they remain on your credit report. These all can have a devastating effect on your credit score:
1. Late payments: seven years
You normally have a month to make a minimum payment on an outstanding credit card, loan or mortgage balance. Your credit report will be dinged if your payment is 30 or more days late. You may have to pay a late fee and your interest rate might rise.
Just one late payment can sink your credit score because your credit history accounts for about 35 percent of your score. It may seem counterintuitive, but the most dramatic damage occurs when you have a spotless record until the late payment.
A history of late payments renders you unreliable in the eyes of creditors and hampers your access to credit.
2. Bankruptcies: seven to 10 years
Bankruptcy is a judgment from a court that removes or restructures your debt. It has a very negative impact on your credit score.
- Chapter 7 Bankruptcy: 10 years
This type of bankruptcy liquidates your debts and is only available if you have little or no disposable income. A trustee will sell the majority of your assets to help pay off creditors.
- Chapter 13 Bankruptcy: seven years after completion
This is a reorganization arrangement in which you agree to a repayment plan with your creditors. It is less harmful than a Chapter 7 bankruptcy because you keep your assets, and it may allow you to catch up on your mortgage payments.
3. Foreclosures: seven years
A foreclosure occurs when your bank take possession of your home because you have fallen several months behind on your mortgage payments. Though it remains on your credit report for seven years, its impact dwindles after a few years if you take steps you repair your credit.
You may want to explore alternative ways to finance your home.
4. Collections: About seven years
A creditor may sell your overdue debt to a collector, who will hound you until you pay up. Credit cards debt typically goes to a collector when it is 180 days late. The bigger the debt under collection, the more it hurts your credit score.
5. Public records: seven years and up
These are negative events available for everyone to see. They include tax liens, wage garnishments, civil judgments, bankruptcies and foreclosures. Unpaid tax liens can remain on your report for longer. For example, they can haunt your Experian credit report for 15 years!
Things to remember about your credit report
- You can initiate a procedure, in writing, to address the problem with the credit bureau and to have them remove the errors. A credit repair company can help you because it knows exactly how and when to communicate with the credit bureau.
- States impose a statute of limitations on how long — usually four years or longer — a creditor may sue you for unpaid debt. This has no effect on your credit score.