When consumers ask me questions about their credit reports it’s normally about how to get an item removed or corrected. Sometimes, however, I do get questions about having information added to a credit report. This type of question brings up an interesting concept, which is whether or not consumers have the right to certain credit report information or even the right to a credit report at all.
The Fair Credit Reporting Act
The Federal statute that governs the credit reporting agency’s actions, the use of credit reports, and the furnishing of information to the credit reporting agencies is the Fair Credit Reporting Act or “FCRA.” The FCRA is a consumer protection statute that has been around since the early 1970s and confers rights to consumers as it pertains to their credit reports. The Act has been amended dozens of times.
There is no language in the FCRA that affirmatively gives consumers the right to have a credit report. And, there’s also no language in the FCRA that gives consumers the right to demand that they do not have a credit report. The act is silent on those two issues.
The Voluntary System
What this means is you cannot demand that a credit reporting agency push a button, delete your credit report information, and then never again collect information about your credit obligations. Conversely, you also cannot force a credit reporting agency to reach out to your bank or other service providers, get information about how you manage your accounts, and then add them to your credit reports.
Your credit scores might not be the same.
There are some very limited scenarios with federally guaranteed student loans and their servicers. The loan servicers may be required by the Department of Education to credit report debtor obligations, but that’s not the same as a lender choosing to report, or not to report. That’s entirely voluntary.
From a more granular perspective, you also don’t have the right to identical credit reports and certainly, you don’t have the right to identical credit scores across the credit reporting agencies and the various brands of credit scores. So, you cannot demand that your credit reports at Equifax, Experian, and TransUnion be the same and you cannot demand that your FICO and VantageScore credit scores are identical.
In fact, you don’t even have the right to a credit score, at all. There are certain minimum criteria that must be met before your credit report will even qualify for a credit score. When your credit report is created, a process that normally occurs the first time you apply for credit, it will not qualify for a credit score because there isn’t enough information to make it scorable.
Consistency, or Inconsistency
Another interesting aspect of credit reporting and our control (or lack of control) over what goes on and what does not go on our credit reports is the issue of consistency. For example, I can be added as an authorized user on Credit Card A and also added as an authorized user on Credit Card B, and there’s no guarantee that both card issuers will choose to report the account on my credit reports.
There’s also no guarantee that the issuer of Credit Card A will credit report all of their authorized users. They may choose to report some of them, and then choose to not report the rest. There’s nothing I can do about this. There’s nobody to complain to about the consistency issues and you can’t leverage your rights to consistency, because you don’t have any.
You also cannot control whether or not any of your lenders report to all three of the credit bureaus. For example, you may have a lender that reports to Equifax, but not to Experian and TransUnion. You can come up with any number of other combinations, and those would be true as well.
Not all credit card issuers report authorized user data to the credit bureaus.
This can be an issue with the use of secured credit cards, which are a common tool used by consumers to build or rebuild their credit. Notwithstanding the fact that becoming an authorized user on a loved one’s credit card is a much better alternative, there’s no guarantee that your secured card issuer will report to any of the credit bureaus.
Users of Credit Reports
There’s one final issue to cover on this topic of consistency. The users of credit reports, as in lenders and debt collectors, also don’t have the right to use credit reports or to furnish information to any of the credit bureaus. All users of credit reports had to apply for service with the credit bureaus and then go through a process of consideration and evaluation by the credit bureaus before their accounts were approved.
And even if a company has an account with the credit bureaus, buys credit reports, and furnishes information to the credit bureaus there’s no guarantee that they will always have that account. The credit bureaus can choose to stop doing business with a lender or a debt collector. They can also choose to purge data provided by a former client. And like consumers, there’s nothing they can do to force a credit bureau to change their mind.
John Ulzheimer is a nationally recognized expert on credit reporting, credit scoring and identity theft. He is the President of The Ulzheimer Group and the author of four books about consumer credit. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has 27+ years of experience in the consumer credit industry, has served as a credit expert witness in more than 370 lawsuits, and has been qualified to testify in both Federal and State courts on the topic of consumer credit. John serves as a guest lecturer at The University of Georgia and Emory University’s School of Law.
Disclaimer: The views and opinions expressed in this article are those of the author John Ulzheimer and do not necessarily reflect the official policy or position of Tradeline Supply Company, LLC.
Derogatory items on your credit report can be a big problem for your finances. These negative marks can stay on your credit report and damage your credit scores for several years. Fortunately, there are some things you can do to avoid getting derogatory marks as well as reduce the damage if you do end up with a negative item on your credit.
We’ll help you understand minor and major derogatories, how derogatory items affect your credit score, and what you can do about them.
What Is a Derogatory Credit Item?
The word derogatory simply means negative, so a derogatory credit item is a negative item on your credit report.
Derogatory items hurt your credit score and can impact your chances of getting approved for credit.
There are two types of derogatory items: minor derogatories and major derogatories.
Minor Derogatory Items
A minor derogatory is a payment that was past due, either 30 days late or 60 days late. If, after the 30- or 6-day late, you brought the account current again, then it is considered a minor derogatory mark. However, if you are currently 30 to 60 days late, it is considered a major derogatory, which we will discuss below.
30 Days Past Due
Lenders cannot report your account as late to the credit bureaus until 30 days have elapsed since the missed due date, so if you pay your bill anywhere between one to 29 days after the due date, you should not see a derogatory item reflected on your credit report.
However, your lender may charge a late fee, so it’s still best to pay all of your bills on time. If you’ve never been late on the account before, you can contact your lender and see if they can waive the late fee for the accidental late payment. Many lenders are willing to do this for account holders that otherwise have good records.
In addition, if you have a promotional interest rate, you will most likely forfeit the promotional rate if you miss a payment, even if you were only a few days late.
A 60-day late payment could result in an interest hike from your credit card issuer.
60 Days Past Due
If you miss your due date twice in a row and become 60 days late, the situation becomes more serious. At this point, the credit card issuer can hit you with a penalty APR of up to 29.99%.
Not only will this high interest rate apply to all your purchases for at least the next six billing cycles, but in this case, the bank is also allowed to apply the penalty rate to your existing balance as well. Not all credit cards have penalty APRs, however, so check the terms of your card to see if you could be subject to one.
Thankfully, “universal default” is a thing of the past—the practice of credit card companies raising consumer’s interest rates if they were late on any loan with any lender was banned by the Credit Card Act of 2009.
However, the exception is if you have multiple cards with the same bank. In this case, if you miss a payment on one of the cards, the bank is allowed to raise your rates on all of the cards you have with them.
Major Derogatory Items
A court judgment against you is a major derogatory.
A major derogatory credit item is typically defined as an account that is 90 days past due or more. If you have a major derogatory on your credit report, that is a huge red flag to lenders, and it may hinder you from being able to qualify for credit.
Examples of major derogatory credit items include:
Charge-offs – This is when a creditor writes off your account as a loss because you are so delinquent on the debt that they assume that the debt is unlikely to be paid. This typically happens after six months have passed without payment. Collections – After your account has been charged off by the lender, they may try to regain a portion of their losses by selling the account at a discount to a debt collector, who then becomes the owner of the debt and will try to collect the funds from you. Court judgments – A judgment is when a lender or debt collector sues you over an unpaid debt and the court orders you to repay it. A court judgment gives the lender or debt collector more powerful options to collect the money you owe them, such as garnishing your wages or putting a lien on your home. Foreclosures – This happens when you become so delinquent on your home loan that the bank takes possession of the home so that they can try to recover the balance of the loan by selling the property. Settlements and short sales – A settlement is an agreement between you and your lender that you will pay back part of the debt you owe them. The lender will then stop trying to collect more money from you after you have paid the settlement amount, but since you did not pay the full amount you owed, it is a derogatory item. A short sale is considered to be a type of settlement since the lender is agreeing to sell the property for less than the mortgage balance you owe.
Bankruptcy is the most serious derogatory credit item.
Repossessions – This is when the lender takes back possession of something such as your car or your house because you defaulted on the payments. Public records – Public records such as delinquent taxes, liens, unpaid alimony, and unpaid child support, are derogatory items that can be severely damaging to your credit, especially if there is still a balance owed. Bankruptcy – Filing bankruptcy means you are asking to be legally released from paying back some or all of your debts. Because of this, and because it affects several credit accounts, not just one, it is the most damaging derogatory item. It will almost certainly devastate your credit score and reduce your chances of getting approved for credit for a significant amount of time, although it is possible to recover from bankruptcy eventually.
How Do Derogatories Affect Your Credit Score?
As you may have guessed, any derogatory mark on your credit report can seriously damage your credit score. However, they do not affect everyone equally. There is no predetermined amount of points that is associated with any given credit action.
“There is no fixed value to any derogatory entry. Their value is always relative to the presence or absence of other similar derogatory entries on a credit report. So, the answer to the question ‘how much?’ varies from ‘not at all’ to ‘a whole lot’ — and everything in between.”
In other words, the effect of a derogatory item could range from a significant drop in your credit score to potentially no difference in your credit score at all. It is going to depend on 1) what else is already in your credit file and 2) the severity of the derogatory information.
For those who have pristine credit records, even one 30-day late payment can do some serious damage to their credit scores. On the other hand, if you already have some delinquencies on your report, additional delinquencies won’t have as great of an impact.
Derogatory items will also have a larger impact on those with thin or short credit files, meaning they do not have very much positive credit history to help soften the blow of a negative mark. In contrast, those with a thicker file or longer credit history will have more positive history in their file to help balance out any negative events.
Credit scorecards, or “buckets,” can affect the impact of a derogatory item on your credit score.
Another complication is the concept of credit scoring scorecards or “buckets,” which score groups of consumers differently based on certain characteristics of their credit profile.
As a hypothetical example, there could be a scorecard for consumers with no major derogatories and a scorecard for consumers with one major derogatory. In this case, getting your first major derogatory mark could put you into a different scorecard, wherein your score would be calculated in an entirely different way than it was before.
While the impact of a derogatory item is going to vary from person to person depending on their unique individual credit history, one thing we do know for sure is that derogatory items become less impactful to your credit as time passes.
In fact, it is still possible to have good credit with a derogatory mark on your credit report if it is an old item and you have balanced it out with positive credit history since then.
How Late Payments Affect Your Credit Score
In terms of how bad late payments are for your credit, it’s not so bad to miss a payment on one account for one or two months, according to an article on The Balance. However, missing payments on several different accounts for one to two months will be worse for your credit. And finally, missing even one payment for three months in a row will be equally as harmful as a charge-off or collection since they are all major derogatory items.
The Impact of a Derogatory Item May Depend on the Credit Scoring Model
When it comes to collection accounts, for example, collections that have been paid off and small-balance collections have different impacts depending on which credit score is used.
FICO 8, the most widely used credit score, considers both paid and unpaid collections to be major derogatories. That’s one reason why paying off a collection account may not always increase your credit score.
FICO 9 and VantageScore 3.0 and 4.0 disregard collection accounts altogether once they have been paid. In addition, these three scoring models assign less weight to medical collections. FICO 8 and FICO 9 ignore collections that had an original balance of less than $100.
Paying the past-due balance does not make the derogatory mark disappear, but it is usually still a good idea.
Does Paying the Past-Due Balance Delete the Derogatory Mark?
Unfortunately, simply bringing the account current by paying the past-due balance does not make the derogatory mark disappear. It does not negate the fact that you were late paying your bill, which is important information that helps determine your credit score and helps lenders decide whether they want to do business with you.
Payment history is the most important part of both your FICO score and your VantageScore for a reason. It is highly predictive of how much of a credit risk you represent to lenders. For that reason, accurate derogatory information must stay on your credit report even after you have caught up on payments.
However, can still be beneficial to pay off the derogatory items on your credit report. Experian says, “While paying off a derogatory account won’t automatically remove it from your credit history, it will be updated to show it has been paid, and lenders may view a paid derogatory more favorably than an unpaid one.”
How to Minimize the Credit Score Impact of a Derogatory Item
Although bringing an account current will not remove the negative information from your credit report, it is still a good idea. Having made a late payment in the past and then catching up is better for your score than currently being late.
Moving forward, do your best to make sure you’re not late again.
Maintaining a positive credit history from now on is the most important thing you can do to minimize the effect of a derogatory item and restore your credit back to health.
Once you have done all you can to mitigate the damage of a derogatory item, then it simply becomes a matter of waiting until the negative mark ages off your credit report.
How Long Can Derogatory Credit Items Stay on Your Credit Report?
In general, derogatory marks can be reported for up to seven years after the account was first reported as late, which is referred to as the date of first delinquency (DOFD).
If you get a court judgment against you, however, that will remain on your credit report for seven years after the judgment was issued, not seven years from the date you were first late on the original debt.
Certain types of accounts can stay on your credit report even longer. Depending on the type of bankruptcy, for example, bankruptcy may stay on your credit report for up to 10 years.
According to Experian, since a Chapter 13 bankruptcy requires you to pay some of the debts you owe, this type of bankruptcy is removed from your credit report after seven years. With a Chapter 7 bankruptcy, you don’t pay back any of the debt, so it is removed 19 years after the date of filing instead of seven years. The individual accounts associated with the bankruptcy will still disappear seven years after the DOFD for each account; filing for bankruptcy does not affect the seven-year timeline.
Dispute derogatory items on your credit report that are inaccurate via mail.
Besides a Chapter 7 bankruptcy, all other delinquencies are required by law to be deleted from your credit report after seven years. However, the impact of a derogatory mark on your credit score will decrease over time, especially if you maintain a positive credit history going forward that can help outweigh the negative items.
Removing Derogatory Credit Items From Your Credit Report
If you have inaccurate negative items on your credit report, it’s in your best interest to dispute the derogatory items on your credit report as soon as possible.
Your credit reports should have instructions on how to dispute derogatory credit items that have been put on your credit report in error. The best way to dispute inaccurate negative information is to send a separate letter for each dispute via certified mail, along with any accompanying evidence that is needed to verify the validity of your claim.
Make sure to dispute the derogatory items on your credit report with the credit bureaus as well as with the creditor that is furnishing the data.
Should You Write a Letter Explaining Derogatory Items on Your Credit Report?
You may need to write a letter explaining derogatory items on your credit report when applying for a mortgage.
A letter of explanation is a letter that you write to a lender explaining the reason for negative marks on your credit report. This may be required by your lender when you apply for a mortgage, particularly when applying for a home loan that is subsidized by the government, such as an FHA loan or VA loan.
Your mortgage lender needs to be certain that you will be able to pay off your home loan. They will want to understand the circumstances of any derogatory items on your credit report in order to determine whether you have learned from your mistakes and taken steps to improve your situation or whether you may still be at risk of defaulting on a loan in the future.
A good letter of explanation should be truthful, clear, and detailed. If there were extenuating circumstances that led to you becoming behind on your bills, explain what happened and how you resolved the problem. As with a credit report dispute, be sure to include any documentation that supports your story along with your letter of explanation. Try looking up sample letters of explanation online if you need help.
How to Avoid Getting Derogatory Marks on Your Credit Report
Since accurate and timely derogatory information can’t legitimately be removed from your credit report, the best strategy is to prevent them from happening in the first place.
If you accidentally miss a payment, call your creditor right away to see if they can waive your late fee.
Here are some tips to help you keep your credit in the clear.
To ensure you never miss a payment, set up automatic payments for all your loans and credit cards. As an additional precaution, also set up notifications that alert you when your statement is available and when your due date is coming up so that you can keep an eye on your accounts and make sure that the payments are going through. Knowing exactly when your bill is due and how much you need to pay will also allow you to make sure that you have sufficient funds in your bank account to make the required payments. If you are in a period of financial hardship and can’t afford to make the minimum payment, contact your creditor and try to work out an arrangement with them to temporarily reduce or defer payments. If you accidentally miss a payment but you usually pay on time, bring the account current by making the payment as soon as possible. Then, contact the lender and ask if they would be willing to waive the late fee. If you pay before 30 days have passed since your original due date, you can avoid getting a derogatory mark reported to the credit bureaus. If you’re 30 to 60 days late, you’ll have a minor derogatory on your credit report, but not a major derogatory. Try your best to pay before the account becomes 90 days past due, at which point it will count as a major derogatory. Regularly check your credit reports for derogatory items that don’t belong to you so you can dispute the errors and have them removed from your credit report.
Conclusions
Having derogatory items on your credit report, particularly major derogatories, can be highly damaging to your credit for a long time. If there are derogatory items in your past, balance out the negative effects by adding positive payment history going forward, and use smart credit strategies to avoid getting derogatory marks in the future.
People often point the finger at inquiries as the cause of their bad credit, but is this blame justified? Can inquiries really kill your credit score? Keep reading to find out.
Credit Inquiries Definition
A credit inquiry, also commonly referred to as a credit check or a credit pull, is a request by a business to check your credit report.
There are two different types of credit inquiries: a hard inquiry (or “hard pull”) and a soft inquiry (or “soft pull”).
The type of inquiry depends on the reason for the credit pull and the business conducting it.
A hard inquiry occurs when a business who is considering issuing you credit gets your credit report from one of the bureaus.
What Is a Hard Inquiry?
A hard inquiry is when a creditor who is considering issuing you credit pulls your credit report from one of the credit bureaus.
Hard inquiries typically occur when you are applying for loans, including mortgages or auto loans, as well as credit cards.
When you are “rate shopping” to look for the best interest rates on an installment loan, such as a mortgage, auto loan, or student loan, FICO doesn’t penalize your score for this. As long as the credit inquiries are within 45 days of each other, they will all be counted as just a single inquiry.
How Many Points Does a Hard Inquiry Affect a Credit Score?
Since a hard credit inquiry on your credit report means you are actively seeking to get new credit, this is seen as risky behavior by lenders. According to FICO, people with six or more inquiries on their credit files are eight times more likely to declare bankruptcy than people who do not have any inquiries on their credit reports.
For this reason, each inquiry may lower your credit score by up to five points.
The specific number of points an inquiry costs you depends on other factors in your individual credit profile, such as the length of time since your last inquiry. If you do not have any other inquiries on your credit report, a hard pull likely won’t affect your score very much.
Depending on what else is in your credit profile, it may not even lower your score at all.
When Do Hard Inquiries Fall Off a Credit Report?
Hard inquiries are automatically removed from your credit report after two years.
How Long Do Hard Inquiries Affect a Credit Score?
While hard credit inquiries fall off your credit report in two years, they only impact your credit score for the first year.
What Is a Soft Inquiry (Soft Credit Check)?
A landlord may do a soft credit check when evaluating your rental application.
A soft inquiry, also known as a soft pull or soft credit check, can happen for a variety of different reasons. Unlike hard inquiries, which are conducted by businesses considering offering you new credit for the first time, soft pulls are used by entities that are interested in your credit report for other purposes.
This could include potential employers or landlords pulling your credit as part of a background check, for example.
When you check your own credit report, this is also considered a soft inquiry.
Soft credit checks may also be used by businesses you already have accounts with who routinely check to make sure you are still a creditworthy consumer.
How Do Credit Inquiries Affect Your Credit Score?
Soft inquiries do not affect your credit score. Soft pulls are typically not used when you are actively seeking new credit, so they do not necessarily indicate risky financial behavior. Therefore, they are not factored into your credit score.
Since checking your own credit report is classified as a soft credit check, you do not need to worry that checking your own credit report will affect your score. It is a myth that checking your credit will make your score go down. You can actually check your own credit report as many times as you like without it affecting your score.
New credit makes up 10% of a FICO score.
In fact, you can even get a free soft credit check of your own report using free sites like creditkarma.com.
When it comes to hard pulls, although people tend to fixate on the impact of these hard credit inquiries, the truth is that they are a relatively minor player in your credit score.
Of the factors that go into your credit score, the category that includes inquiries, “new credit,” is the smallest one, making up about 10% of your score.
Within that small category of new credit, according to FICO, there are several different data points that are taken into consideration. These data points include:
The number of new accounts The proportion of new accounts vs. seasoned accounts for each type of account The number of recent credit inquiries The amount of time that has passed since recent account opening(s) for each type of account The amount of time that has passed since recent credit inquiries
As you can see, there are several variables in this category that can affect your credit score beyond the number of inquiries on your credit report.
Since inquiries are just one variable within one small piece of the credit score pie, they do not weigh heavily on one’s credit score. Therefore, as we mentioned above, each hard inquiry should only cost you a maximum of five points, and if they are done in a short period of time they often are only counted as one inquiry.
Inquiries typically only cause problems if you show new hard inquiries continuously over a long span of time, which makes you seem more risky to potential lenders.
One possible reason for this conclusion is if you continuously have your credit ran over an extended period of time, the lenders assume that you are being denied credit. As mentioned above, this is not the case as long as the inquiries are done in a short period of time. That is assumed to be the “shopping” period.
In the case of someone having continuous hard pulls over an extended period of time, a few points lost per inquiry can add up if there are a lot of them. If you have 10 inquiries on your credit report over an extended period of time and the average decrease in score per inquiry is 3 points, that’s a total loss of 30 points! If you are near the lower edge of the “good credit” range, this 30-point dip could take you into a lower credit score level.
This would be an example of a more extreme situation, but if this person were in the “bad credit” category after the hit from these inquiries, the inquiries may have tipped the scale on the credit score category, but they are not the original cause of being on the cusp of bad credit to begin with.
Some people believe that you cannot get a mortgage if you have recent inquiries on your credit report. However, inquiries themselves are typically not an automatic disqualifier, although you may have to give a few sentences explaining each inquiry. If you have enough inquiries on your credit report to lower your score, though, this could affect the terms of your loan.
Can You Remove Inquiries From Your Credit Report?
People with a lot of inquiries on their credit reports often want to know how to remove inquiries from a credit report fast. However, as with any credit repair process, there is no silver bullet that will instantly boost your credit score. It takes time, work, and patience if you want to see your credit score go up.
It’s also important to note that there is no legitimate way to remove timely and accurate inquiries from your credit report. If you really did get a hard inquiry, it would be fraudulent to lie and claim that the inquiry should be removed.
The same rules apply when you are working with a credit repair company. The FTC says, “The first rule of credit repair is that no credit repair company can remove accurate and timely negative information from someone’s credit report.”
If you have inaccurate inquiries shown on your credit report as a result of identity theft or a reporting error, however, you can and should look into how to delete hard inquiries so you can get the credit inquiries removed.
How to Remove Inquiries From a Credit Report
Hard inquiry removal may seem intimidating, but removing credit inquiries from your credit report is certainly possible if they are inaccurate or fraudulent.
If you are interested in how to delete credit inquiries, the best way to go about it is by writing a credit inquiry removal letter. Write a letter to the credit bureau(s) that explains the errors and proving that you did not authorize the hard pull on your credit report. Also, attach a copy of your credit report indicating which inquiries are inaccurate. The FTC provides a sample letter that you can use as a template.
Once the bureau(s) receives your credit inquiries letter, they have 30 days to investigate the dispute and respond. If the creditor cannot prove that you authorized the hard pulls on your account, the bureau will delete the inquiries from your credit report, and the credit inquiry removal process will be complete.
Conclusion on Credit Inquiries
We often hear people blaming their bad credit on the fact that they have too many inquiries on their credit. However, we do not believe that inquiries are really the cause of bad credit.
We believe the cause of bad credit usually comes down to missed payments, defaults on loans, and/or high credit utilization. These factors are much more significant than simply too many inquiries.
We are aware that on many credit monitoring platforms, the system may mention that the person has too many inquiries. Perhaps this is one cause of the myth that inquiries are the cause of bad credit.
However, as illustrated in this article, inquiries are only one data point among several other data points within the category known as “new credit,” which accounts for around 10% of someone’s overall credit score. This does not mean that inquiries alone count for 10% of your credit score. It means that inquiries are one of several data points that combined account for around 10% of a credit score, so it should be fair to assume that inquires, in fact, count for less than 10% of a credit score.
It may be possible for inquiries to have a significant effect on one’s credit score in extreme cases such as someone having multiple hard inquiries pulled continuously over the course of a year. However, in more typical scenarios, inquiries most likely are not the cause of someone having bad credit.
Nearly half of Americans believe a credit score and a credit report are the same thing, according to a study by the American Bankers Association. That’s a big problem because it means many of us are seriously misinformed about how the credit system works.
Since credit is such an integral part of our financial ecosystem, it affects nearly all of us at some point in our lives. Your credit health can determine not only your access to credit and the cost of using credit but also employment opportunities, housing options, and more. Not understanding how credit works, therefore, can have serious consequences.
We want to help address this problem by making it easy to understand what your credit report is and why it’s important, the difference between your credit report and credit score, how to get a free credit report, and how to dispute errors on your credit report.
What Is a Credit Report and Why Is It Important?
A credit report is a detailed report on your credit history prepared by a credit reporting agency, also known as a credit bureau. The three main credit bureaus are Experian, Equifax, and TransUnion, and we’ll discuss each below. What is in your credit report can be different for each bureau, since they are private companies that do not share information.
What Is in a Credit Report?
Credit reports contain identifying information such as your name, social security number, and current and previous addresses. They also contain a detailed summary of your credit history, which includes items such as the following:
Credit reports include a list of your credit accounts and financial records.
A list of current and past tradelines (credit accounts), along with the date opened, credit limit, balance, and payment history of each account Inquiries into your credit history Public records of bankruptcies, foreclosures, tax liens, etc. Accounts in collections
How Far Back Do Credit Reports Go?
The information in your credit report usually goes back about 7-10 years. Current accounts should show up on your credit report as long as they are open. Negative information, such as collections, will fall off your credit report seven years after the delinquency occurred. Closed accounts that were closed in good standing fall of your credit report in 10-11 years.
What Is the Difference Between a Credit Report and a Credit Score?
A list of all your credit accounts and related personal information A three-digit number between 300 and 850 meant to represent your creditworthiness
Information in your credit report is used to calculate your credit score Reflects the information in your credit report
You are legally entitled to get a free credit report from each bureau once a year You are not legally entitled to check your credit score for free (although some credit card companies may offer this to customers)
Does not include your credit score Does not include information on your credit history
Does Checking My Credit Report Hurt My Score?
While this is a common misconception, you can rest assured that checking your credit report won’t lower your credit score. Checking your own credit is what’s known as a “soft inquiry” or “soft pull,” which doesn’t hurt your credit. “Hard” inquiries can ding your score, but these are used by creditors when making lending decisions, not for checking your own credit report.
How to Get a Free Credit Report
By law, everyone is entitled to receive one free credit report from each of the three major credit bureaus once every 12 months. You can order all three at the same time or order each individual report one at a time.
Some people like to spread them out and get a free credit report from a different bureau every four months so that they can regularly check their credit reports for errors and inconsistencies. Each credit bureau is a private, for-profit company, and they don’t share information, so you could have errors on one of your credit reports but not the others.
Free credit monitoring websites like CreditKarma provide free credit reports and scores.
The best way to check your credit report for free is to order your free credit report from annualcreditreport.com. In fact, this is the only website authorized to provide the annual free credit report you are legally entitled to, according to the FTC—so beware of other sites claiming to offer free credit reports or free trials, especially if they ask for your credit card information.
However, there are now several free credit report websites that earn money through advertising and are thereby able to offer free credit monitoring services. Sites that offer completely free credit reports include:
You can also check your credit report for free if you have been denied credit because of the information in your credit report. You are entitled to get a free credit report from the bureau who provided the report that the lender used to make their decision.
You are entitled to a free credit report if you are unemployed and applying for jobs.
For example, if the lender who denied you credit looked at your Experian credit report, you can request your Experian free credit report. The adverse action letter informing you of the reason for your denial should have instructions on how to request your free credit report.
There are a few more cases in which you can qualify for an additional free credit report, including:
If you are unemployed and planning to look for work. If you receive government assistance. If you are a victim of identity theft.
Although experts recommend checking your credit reports at least once a year, the Consumer Financial Protection Bureau (CFPB) estimates that less than one in five consumers get copies of their credit reports each year. Don’t miss out on this opportunity to get your credit report for free so you can make sure your credit report is accurate and identify any problems before they get worse.
Can I Get a Free Credit Report Directly From the Credit Bureaus?
You can also get your credit report directly from each of the credit bureaus, but you may have to pay a fee if you go this route. If you want to get a credit report for free, your best bet is to order from annualcreditreport.com.
However, some people may want to check their credit reports more than once a year, so we’ll discuss additional options for obtaining your credit reports below.
Experian Credit Report
You can get a free Experian credit report that refreshes every 30 days through Experian’s website. They also offer paid options that come with additional information. The Experian free credit report does not include a free credit score.
Equifax Credit Report
You can get your TransUnion and Equifax free credit reports on third-party websites.
While you cannot get an Equifax free credit report from the bureau directly, you can pay a fee to access your Equifax credit report and score. To get your Equifax credit report, visit their website.
You can also view your free Equifax credit report and score through CreditKarma, which updates once a week.
TransUnion Credit Report
Accessing your TransUnion credit report requires signing up for a paid monthly subscription service with TransUnion. However, you can get a free TransUnion credit report from CreditKarma or NerdWallet.
How to Dispute Errors on Your Credit Report
Unfortunately, studies have shown that as many as one in five consumers may have errors on their credit reports, and about one in 20 have errors that are significant enough to potentially lower their credit scores. This means it is crucial to monitor your credit reports regularly and be aware of how to fix errors on your credit report.
The credit bureaus offer online forms to submit credit report disputes, but experts warn against using this option, as it does not allow you to write a detailed explanation of why you are disputing the information or provide sufficient supporting evidence. This leaves room for the credit reporting agency to deny your claim because you did not provide enough information.
The best way to dispute a credit report is to write a detailed credit report dispute letter and mail it to the bureau along with plenty of documentation verifying your identity and supporting your claim.
Once a dispute has been filed, the bureaus typically have 30 days to investigate the claim. If they verify that the item is accurate, it will remain on your report; if not, they must either update the item with the correct information or delete it entirely.
Errors on your credit report can, unfortunately, lead to bad credit. For this reason, checking your credit report regularly and disputing any errors is an essential step in maintaining your financial health.
It’s important to check your credit report for errors regularly.
If you have a lot of errors on your credit report or if you have been the victim of identity theft, it may also be worth considering hiring a reputable credit repair service to assist you in the dispute process.
Which Errors Can You Dispute?
The law requires that the information in your credit reports must be accurate, complete, timely, and verifiable. Anything that does not meet these requirements can be disputed.
Technically, you can dispute anything in your credit file, but that doesn’t mean you should try to dispute things that you know are accurate. The credit bureaus are allowed to ignore “frivolous” claims, and if they verify something to be true, it will stay on your credit report.
For more tips on how to dispute a credit report, check out this article from creditcards.com.
Quick Credit Report Facts
A credit report is a detailed report on your credit history prepared by one of the credit bureaus: Experian, Equifax, and TransUnion. The information in your credit report is used to calculate your credit score. Checking your credit report does not hurt your score. You are entitled to a free credit report from each of the three bureaus once a year, which you can order from annualcreditreport.com. You can dispute errors on your credit report by mailing a credit report dispute letter and supporting documentation to the credit bureau.
Myths and misinformation about credit scores, credit reports, and credit repair are extremely common. Unfortunately, many people believe these myths, and their credit suffers as a result of taking incorrect actions.
Let’s get to the bottom of these credit myths and learn the truth about them so you can start improving your credit the right way.
Myth: Everyone automatically has a credit score. Fact: 1 in 5 adults in the United States do not have credit scores.
A report by the Consumer Financial Protection Bureau (CFPB) found that one-fifth of adults in the United States do not have enough credit data to calculate a credit score by traditional methods. These consumers are called “credit invisibles.”
Low-income consumers are particularly susceptible to credit invisibility due to lack of access to traditional credit products. Some consumers may be credit invisible for other reasons, such as a voluntary decision not to use credit.
For those that do not use credit for whatever reason, it is likely that they do not have enough of a credit history to generate a credit score.
Consumers that are credit invisible may be able to generate a credit record by piggybacking on the good credit of others, but don’t assume that everyone has a credit score just by virtue of existing.
Myth: Checking your credit report will hurt your credit score. Fact: Checking your own credit will not hurt your score.
Checking your own credit report results in what is known as a “soft pull,” which means the inquiry does not affect your credit score.
Myth: Your income affects your credit score. Fact: Your credit score does not look at your income.
However, your income can affect your credit indirectly in that it influences the “five C’s” that have been shown to predict credit performance: capacity to pay off debts, the collateral backing a loan, capital available to repay a loan, conditions that affect income and expenses, and the character of the borrower.
Your capacity to pay off debts as well as the collateral and capital they have available to repay loans may all have a relationship with your income.
That’s a big part of the reason why low-income consumers are 8 times more likely than high-income consumers to have no credit score at all. In consumers that do have credit scores, those who reside in low-income areas have lower credit scores. In addition, low-income consumers are 240 percent more likely to have their credit file originated due to derogatory items such as collections.
So while your income is not technically incorporated into your credit score, it can definitely influence your ability to repay debts, which is the basis of a credit score.
Myth: You only have one credit score.
Each consumer can have dozens of different credit scores.
FICO 8 is the credit score most commonly by lenders today, but in some industries, older models or industry-specific models are used instead. For example, there are FICO scores tailored specifically toward auto loans and credit cards, and mortgage lenders are known to use the older FICO score versions 2, 4, and 5. Plus, FICO scores are different for each credit bureau.
VantageScore, which is increasingly used by some lenders as well as for consumer credit education, also has a few versions. The latest version is VantageScore 4.0, but VantageScore 3.0 is still the most commonly used version today.
Altogether, between the many versions of FICO scores and VantageScores, consumers can have dozens of different credit scores.
Myth: Paying half of your minimum payment twice a month counts as two full payments and tricks the system into giving you twice the credit score boost. Fact: Dividing your bill in half and making two payments is the same as paying the full amount once.
This credit myth is unfounded yet often repeated.
If this “credit hack” sounds a little too good to be true, that’s because it is. It is simply not true that you can “trick the system” into thinking you have made two full payments by making two half payments.
Making a payment on a credit account affects two main factors of your credit score: payment history and credit utilization. Let’s discuss each factor individually.
When it comes to your payment history, making a partial payment that is less than the minimum amount due does not satisfy the requirement and will not count as an on-time payment. Only once you have made the second payment for the other half of the amount due will you have satisfied the requirement to be considered paid on time. Therefore, you do not gain any extra benefit to your payment history from dividing your payment into two parts instead of paying the full amount at one time.
As an example, let’s say you have a bill due on the 30th and the minimum amount you must pay is $50. We have laid out the two payment scenarios in the table below.
Scenario 1: Pay the full amount in one payment Scenario 2: Make half of the payment twice
Date Amount Paid Payment Status Date Amount Paid Payment Status
15th
15th $25 Insufficient payment—$25 still due
30th $50 Paid on time 30th $25 Paid on time
As you can see from the table, in both scenarios, you only get the benefit of paying your bill on time once per billing cycle, not twice.
Now let’s discuss the utilization factor. Continuing with the same example, the total amount you are paying toward the account is $50 in both scenarios. Therefore, the overall improvement in your utilization ratio is going to be the same either way.
Now, if the reporting date for that account is in between the first and second payments, since you have already sent a partial payment, you may temporarily get a small boost from having a slightly lower utilization ratio when the account reports to the credit bureaus. But at the end of the billing cycle, the result will be the same.
If you don’t have any credit history, you can being building credit by piggybacking on someone else’s good credit.
If you decide to make extra payments in addition to your minimum payment, which is ideally what all responsible borrowers should be doing, that can certainly help your credit score by speeding up your debt repayment. But simply splitting the minimum payment into two payments won’t do anything to boost your score.
Myth: If you don’t have credit history, you’ll never be able to get credit. Fact: You can start building credit by piggybacking.
While it can definitely be more difficult to get credit when you don’t have any credit history to begin with, it’s not impossible. There are credit products out there designed for people with no credit or bad credit, such as secured credit cards and credit-builder loans.
Another way to start building credit fast is by piggybacking off of the good credit of someone else. You could have someone you trust cosign on a loan or open a joint account with you, or you could become an authorized user on someone else’s seasoned tradeline.
If you are not lucky enough to know someone who has a seasoned account with perfect payment history that they could add you to, consider purchasing tradelines from a reputable tradeline company.
Myth: Paying off a collection will “re-age” the debt because the account falls off your credit report based on the date of last activity. Fact: Collections fall off your credit seven years after the initial delinquency and cannot legally be re-aged.
It is illegal to “restart the clock” on collections.
If you’ve read our article about collections on your credit report, then you know that it is the date of first delinquency (DOFD) that determines when the collection will be removed from your credit report, not the “date of last activity” (DLA).
The reason why some people may believe this myth is because shady debt collectors sometimes illegally change the date of first delinquency to the date of last activity in an attempt to re-age the debt.
As we said, this practice is illegal. If you notice that a debt collector has improperly changed any information about a collection account on your credit report, you have the right to dispute the inaccurate information.
Myth: Paying off a collection will boost your credit score. Fact: Paying off a collection may or may not raise your score depending on which credit score is used.
While it makes sense to assume that paying off a collection should increase your credit score, that is not always the case. In fact, more often than not, this is not the case, although it depends on which credit score is being used.
With FICO 8 and all previous FICO scores, both paid and unpaid collections are categorized as major derogatory items on your credit report. Therefore, paying off the account will not change how it is considered by the credit scoring algorithm, which means your score may not go up at all.
On the other hand, FICO 9, VantageScore 3.0, and VantageScore 4.0 ignore paid collection accounts, so your score should recover after paying off a collection if one of these credit scoring models is being used.
Myth: You should close accounts you’re not using. Fact: You should keep accounts open and use them periodically.
While you might think that closing accounts you don’t need will help your credit score, the opposite is actually true, especially when it comes to revolving accounts such as credit cards.
The main reason for this is that credit utilization is an important part of your credit score, and closing credit card accounts will hurt your utilization ratio by decreasing your credit limit.
It could also hurt your mix of credit, although that’s a less important factor.
In addition, payment history is the number one factor that helps your score. It’s better for your credit to keep the account open, use it for small purchases here and there or a monthly subscription, and pay it off every month to keep building more positive payment history.
The exception to this is if an account comes with an annual fee that’s no longer worth the price or if you can’t resist the temptation to overspend.
Myth: Closed accounts don’t affect your credit. Fact: Closed accounts can have a significant impact on your credit.
Although we just discussed why you shouldn’t necessarily close old accounts, that’s not to say that closed accounts don’t impact your credit. They certainly can, particularly when it comes to your credit age.
Closing an account does not remove its payment history or age from your credit report, so closed accounts still contribute to your credit age. In addition, accounts can continue to age even after they have been closed.
So although it’s best to keep accounts open if you can, having closed accounts on your credit report is not a bad thing. If the account was closed in good standing, it will likely continue to help your credit.
Carrying a balance on your credit cards is expensive and does not help you build credit. Photo by Hloom on Flickr.
Myth: Carrying a balance on your credit cards will help your credit. Fact: Carrying a balance will not help you build credit and it will cost you interest fees.
While it is important to use credit regularly when building credit, it’s not necessary to carry a balance on your credit cards from month to month. If you do this in an attempt to build credit, you will be wasting money by paying unnecessary interest.
The best way to build credit using your credit cards is to use them responsibly and then pay the full balance due each month, or even make multiple payments each month to keep your utilization ratio as low as possible.
Myth: Shopping around for the best rates on a loan will hurt your credit score. Fact: Getting loan estimates from multiple lenders will not hurt your score if you complete the process within a specific time window.
Credit scoring algorithms understand that it’s smart to shop around for the best rates on a loan, not risky. Therefore, credit scores typically have ways of preventing the series of multiple inquiries that result from this process from hurting your score excessively.
If you are applying for student loans, mortgages, or auto loans, FICO scores allow a certain time frame for you to shop around, only counting one hard inquiry to your credit report for this time period. For older FICO scores, the time window is 14 days; for newer FICO scores, the time window is 45 days.
In addition, FICO scores have a 30-day hard inquiry “buffer,” meaning that the algorithm ignores any inquiries that occurred within the past 30 days when calculating your score.
VantageScore uses a simpler method: it groups all inquiries made within a 14-day window of each other together and counts those all as one inquiry, regardless of what types of accounts the inquiries were for.
Myth: You can fix your credit by disputing everything on your credit report. Fact: Disputing everything on your credit report could get you in legal trouble and may not even help your credit.
If there is information on your credit report that is inaccurate, outdated, incomplete, or unverifiable, of course you would want to dispute those items with the credit bureaus. But it’s not necessarily a good idea to dispute negative items on your credit report that are accurate.
First of all, the derogatory items won’t necessarily get deleted from your credit report, especially if you don’t provide proof that they are inaccurate. They might just get updated with the correct information, or they may get deleted temporarily until an investigation determines the items are valid and they go right back on your credit report.
Furthermore, the credit bureaus don’t have to investigate disputes that are deemed “frivolous,” and they could decide that some of your disputes are frivolous if you are disputing every item in your credit file, regardless of accuracy.
Plus, lying on a credit dispute could be considered fraudulent. According to the FTC, “No one can legally remove accurate and timely negative information from a credit report.”
Even if you were to get away with disputing everything on your report, this might not necessarily help your credit as much as you hoped. If you’ve gone through an aggressive credit sweep and have nothing left on your report, then you essentially have no credit history and likely no credit score, which could be just as problematic as having bad credit.
Myth: CPN numbers can be used in place of social security numbers to create a new, clean credit file.
Using a CPN to apply for credit is a federal crime. Photo via seniorliving.org.
Fact: CPNs are illegal and using one to apply for credit is a federal crime.
Although you might have heard some people claim that “credit profile numbers” or credit privacy numbers” are a legitimate way to protect your privacy or wipe your credit slate clean, in reality, there is no legitimate or legal source for CPN numbers.
Most of the time, these numbers are either fake social security numbers that have not been created yet or real SSNs that have been stolen from children, the elderly, deceased people, people who are incarcerated, and people who are homeless. Either way, using a CPN means getting involved in identity fraud, which is a federal crime.
Myth: The credit score you check online is the same one lenders see when they pull your credit. Fact: Lenders often do not use the same credit scores that are provided for free online.
When you check your credit score for free online, the credit score you see is most likely going to be a VantageScore. This is the score most commonly used by free online services such as Credit Karma.
The majority of lenders, however, primarily use FICO scores, although some lenders are now starting to use VantageScore. Just keep in mind that the score you see online may not be the same as the score lenders see, as there can often be a significant difference between your VantageScore and your FICO score.
If you want to check your FICO score for free, check with your credit card issuer, since many now offer this service.
Myth: If you don’t have any debt, you will have a good credit score. Fact: You need to use credit to build your credit score.
Having good credit doesn’t just come down to the amount of debt you have—that’s just one part of your credit score. Payment history is the most important part of a credit score, so if you’ve never had debt and you don’t have any payment history, you might not even have a credit score at all.
To get a good credit score, you have to use some form of credit and demonstrate that you can use credit responsibly by building up a positive payment history over time.
Myth: There’s no need to check your credit report until it’s time to apply for a big loan. Fact: It’s important to monitor your credit regularly.
Waiting to check your credit score until you need to apply for credit is a mistake because there could be errors on your credit report bringing your score down. Studies estimate that about one-fifth of consumers have at least one error on their credit report, some of which could be serious enough to result in higher interest rates, less favorable loan terms, or being denied credit.
It’s important to keep an eye on your credit so that you can correct errors and fight fraud as soon as possible instead of waiting until it’s too late.
Myth: A late payment will make your score go down by 50 points. Fact: There is no set amount of points that is associated with any particular item on your credit report.
While it is certainly possible that a 30-day late payment could cause a 50-point drop (or more) in someone’s credit score, this is not always going to be the case. There is no fixed number of points that your score will go up or down by for each item on your credit report. Rather, the way in which a late payment affects your score is always going to depend on your individual credit profile.
There is no set amount of points associated with missing a payment.
Credit scoring algorithms are very complex and they incorporate hundreds of variables, such as how recent the late payment is, whether you have other late payments in your credit history, and how severe the delinquency is, not to mention the myriad other variables associated with the other categories within a credit score.
Because delinquencies on your credit report are always going to be relative to whatever else is in your file, there is a “diminishing returns” effect where the first late payment hurts your score the most and each subsequent late payment tends to have a smaller impact. Someone who has a high credit score and has never missed a payment before is going to experience a severe drop from their first missed payment, whereas someone who already has lates on their record and a lower credit score is going to be hurt less by a subsequent late payment.
According to credit expert John Ulzheimer in a blog article, “Delinquencies, like inquiries, do not have independent value… It is entirely inappropriate and incorrect to say that ‘X’ lowered my score by ‘Y’ points.”
He continues, “The late payment didn’t lower your score but because adding a late payment to a credit report moves other things around it caused your score to be different than it was before the late payment was added. If your score is 50 points lower it’s not as if the new late payment lowered your score 50 points…but because the addition of that item caused a different evaluation of EVERYTHING on your credit reports…the new reality for you is 50 points lower.”
The same principle goes for other items on your credit report as well, not just late payments.
Myth: You don’t have to worry about your kid’s credit. Fact: You should keep an eye on your kid’s credit report, too.
The proliferation of scammers and hackers stealing people’s private information means even your kid’s credit profile could be at risk of identity theft. When people use “credit profile numbers” (CPNs), for example, these numbers are often real social security numbers stolen from children.
Make sure you monitor your kid’s credit in addition to your own.
You don’t want to wait until your child is grown up and ready to apply for credit to realize they have bad credit as a result of identity theft. Consider freezing your kid’s credit to prevent fraudsters from opening accounts in their name.
Myth: Everyone’s credit score is calculated in the same way. Fact: Credit scores have “scorecards” that categorize consumers and score them differently.
You already know that credit scoring algorithms are extremely complex, but what many people don’t know about is the “scorecards” or “buckets” within each credit scoring model. These “buckets” consist of different categories of consumers.
For example, according to John Ulzheimer, “There are scorecards for thin files or those with few accounts, bankruptcy, derogatories, and those with clean credit files… Comparing like populations gives this population an opportunity to be considered based on [the] behavior of that group rather than a comparison to another, better group.”
The credit scoring formula is different for each bucket. In other words, items on your credit report can be treated differently based on which scorecard you fall into.
Sometimes your credit score changes in a way that you don’t expect. For example, perhaps an inaccurate collection account got deleted off of your credit report and your score went down, instead of up. This could be because you changed scorecards as a result of the deletion, causing your credit score to be calculated in a different way. Essentially, you might now be at the bottom of a different bucket instead of at the top of your previous bucket.
It’s always good to keep the concept of scorecards in mind, especially when trying to predict any kind of change to your credit score. You can never guess exactly how your score will change because of all the complexities and trade secrets that go into credit scores.
Conclusions
Unfortunately, there are tons of credit myths out there, and believing them may lead you to mismanage your credit and eventually end up with poor credit. We hope that this article helped to dispel many of the misconceptions about credit and helped you get started on the path to better credit.
What credit myths have you heard of? Did you use to believe any of these? We’d love to hear from you, so share your experience with us in the comments!
Collections are one of the worst things to have on your credit report. They can damage your credit score significantly for a long time—up to seven years. This helpful guide explains what collections are, how they affect your credit, how collection agencies try to re-age debt, how to get collections removed from your credit report, and more.
What Is a Collection Account?
A collection account is a debt account that has been sold by the original creditor to a third-party debt collection agency. This happens you (the borrower) are delinquent on payments long enough (generally 180 days) for the lender to charge off the loan, which means they consider the account to be a loss—but that doesn’t mean you’re off the hook.
Once the account has been charged off, the original creditor closes your account and often transfers or sells it to a debt collection agency or a debt buyer. (Debt buyers typically focus on purchasing debt accounts and they hire debt collection companies to attempt to collect the debt.)
When Does the 7 Year Credit Rule Start on Your Credit Report?
Regardless of who the debt was transferred to or when it was transferred, the Fair Credit Reporting Act (FCRA) allows collections to legally be reported by the credit bureaus for up to seven years after the date of the first delinquency (also known as “DOFD” for “date of first delinquency”).
The seven-year rule for collections begins on the date of first delinquency.
What does this mean exactly? How do you figure out the date of the original delinquency of an account?
According to Experian, the date of the original delinquency is the first reported late payment. As an example, if you have a 30-day late reported and never catch up on payments, then the delinquency would later get reported as a 60-day late and eventually as a 90-day late.
The seven-year period after which the delinquency falls off begins with the first missed payment, the 30-day late. If the debt is sold to a collection agency, the original account and the collection account will both be removed from your credit report seven years after the initial delinquency, says Experian.
Medical collections are slightly different in that a 180-day grace period must be provided to allow insurance benefits to be applied. Therefore, the seven-year timeline starts after 180 days, not after a 30-day late.
The date that a collection account is charged off or transferred to another company does not change the DOFD and therefore should not change the date that the delinquency falls off of your credit report.
How Often Do Collection Agencies Report to Credit Bureaus?
Collections agencies can begin reporting to the credit bureaus as soon as they acquire your account. After that, they will typically report to the credit bureaus every month, like most other types of tradelines on your credit report. Therefore, if you have a collection account, you will most likely see the collection agency reporting every month.
Should You Pay the Debt Collector or the Original Creditor?
If you already have an account in collections, meaning the original creditor has already closed your account and transferred it to another owner, you should not pay the lender that the loan was originally from. The debt now belongs to someone else, so it would be pointless to pay the original creditor.
How Do Collections Affect Your Credit Score?
Having one or more collection accounts on your credit report can quickly lead to bad credit. A collection account on your credit report means you failed to make sufficient payments on a debt, which is a big red flag to lenders that you might default on a loan again. Therefore, your credit score will likely suffer a significant drop if you have an account go to collections.
Collections are major derogatories, so they can lead to bad credit. afeCredit.com, CC 2.0.
However, collections with low balances may not impact your score at all, depending on which credit scoring model is being used to calculate your score, such as VantageScore or a FICO credit score.
FICO scores 8 and 9 ignore both paid and unpaid collections that had an original balance of less than $100.
FICO 9, VantageScore 3.0, and VantageScore 4.0 don’t count paid collection accounts against you and treat medical collections as less important than other types of collection accounts.
Unfortunately, with FICO 8 and previous versions of FICO, which most lenders today still use, all collections are highly damaging to your credit score, regardless of what type of account they are or whether the collections have been paid or not.
Does Paying Off Collections Improve Your Credit Score?
Unfortunately, paying off a collection won’t necessarily improve your credit score right away. Why?
As we said, with all FICO scores except FICO 9 (which is not widely used yet), both paid and unpaid collections are considered to be major derogatories on your credit report. Since a paid collection is still a major derogatory mark, paying off your collection likely won’t help your credit score if the scoring model used is FICO 8 or earlier.
On the other hand, since FICO 9, VantageScore 3.0, and VantageScore 4.0 ignore paid collection accounts, your score should rebound after paying off a collection with these credit scoring models.
Can a Collection Agency Change the Open Date of a Collection?
The open date of a collection is the date that the collection account was acquired by a debt collector. Every time the debt changes hands, the new collection account will thus have a new open date.
The open date does not affect how long the collection remains on your credit report because it’s the date of first delinquency (DOFD) that determines when the collection will be removed from your credit. While each debt collector will have a different open date, the DOFD cannot be changed unless it was reported incorrectly.
Can a Collection Agency Report an Old Debt as New?
You may have heard of another date pertaining to collection accounts: the “date of last activity” (DLA).
You might have heard it said that you should never make payments on a collection because that action would change the DLA on the account. If the DLA changes, so the advice goes, this “resets the clock” on the seven-year period after which the collection will fall off your credit.
In reality, debt collectors cannot change the DLA—only the credit bureaus can do that. Furthermore, the DLA does not affect the timeline of your collection account.
As we know, the seven-year period begins at the DOFD, not the DLA, and not the open date of the collection. The collection agencies are not legally allowed to change the DOFD, so there should be no legitimate way for them to “restart” the seven-year timeline. Yet there are many cases in which consumers report that their collection accounts are suddenly being updated as new accounts, even if they are several years old. What is going on in these situations?
This shady practice is the collection agency re-aging the debt.
It’s illegal to re-age a collection account by incorrectly changing the DOFD.
When a debt collector acquires an account, they sometimes improperly update the DOFD to be the same as the date opened. If you make a payment on the collection, they may replace the DOFD with the DLA, which is the date that you made the payment. This explains why the seven-year clock seems to restart in these situations.
But guess what? Re-aging a collection is illegal. Collection agencies cannot legally report an old debt as a new collection.
If a collection agency keeps updating your credit report with incorrect information and the date of first activity or the date opened on your credit report is wrong, you have the right to dispute that account and have it updated or removed from your credit report.
Double Jeopardy Credit Report
A “double jeopardy” credit report is when you have multiple collections for the same account on your credit report. This can happen when the debt is being reported by both the original creditor and the collection agency on your credit report or when the debt is sold to another collection agency.
Experian explains why there may legitimately be duplicate accounts on your credit report:
“When an account is charged off, or written off as a loss, it remains on your credit report for seven years from the original delinquency date leading up to the charge off.
Often, the original creditor will transfer or sell the account to a collection agency. In that case, the original account will be updated to show transferred/closed, and will no longer show a balance owed because the debt is now owed to the collection agency. However, your report will still show the history of the account, including the amount that was written off.
Since you now owe the collection agency, it will report the current balance owed.”
In this case, having multiple accounts for the same collection on your credit report is normal and should not change the impact the collection has on your credit score.
A true case of double jeopardy on your credit report involves duplicate collection accounts on your credit report being reported as open collections, which would be even more of a disaster for your credit than having a single open collection account.
Multiple Collection Agencies Same Debt
If your credit report looks as Experian describes, with the old collection accounts accurately reporting as closed, there may not be much you can do besides wait seven years for the collections to fall off your credit report.
However, if the original creditor and/or multiple collection agencies report the same debt as if they are all separate open collection accounts, that may be an error that you need to dispute with the credit bureaus.
How to Remove Collections From Credit Report
It may be possible to remove collections from your credit report depending on the situation.
How to Dispute a Collection on Your Credit Report
If a collection on your credit report is inaccurate or a duplicate collection account, you can dispute the collection account on your credit report. This doesn’t necessarily guarantee that the collection will be removed from your credit report, though, because the account could be updated with the correct information rather than removed.
How to Remove Paid Collection Accounts From Credit Report: Pay for Delete Collections
Even once you have paid a collection, you may find that it is difficult or impossible to remove it from your credit file. However, if you do want to try to remove zero balance collections from your credit report, one method that consumers use to do this is the “pay for delete” strategy.
You may be able to negotiate a “pay for delete” agreement with the debt collector.
With the pay for delete method, you negotiate with the debt collector to have them stop reporting the collection to the credit bureaus in exchange for your payment, whether you negotiate to pay the full amount owed or settle the debt for a lesser amount.
It may not be necessary to hire a pay for delete service, since you can look for a sample pay for delete letter online, although a credit repair service might be helpful in this situation as well.
Keep in mind that debt collectors are not obligated to accept the offer outlined in your deletion letter, so this strategy is not a guaranteed success.
If the collection agency does agree to delete the collection once you pay it off, it’s best to get verification of this agreement in writing before you make any payments.
Does Pay for Delete Increase Credit Score?
Remember that FICO 9, VantageScore 3.0, and VantageScore 4.0 don’t penalize paid collections, so it may not be a problem to have a paid collection on your credit report if your lender uses one of these credit scores. In this case, the deleted collection won’t increase your credit score.
However, with FICO 8 and earlier FICO scores, paid collections do hurt your credit, so a successful “pay for delete” arrangement could lead to a credit score increase after collection removal.
On the other hand, you may be shocked to learn that it is possible that deleting a collection could actually make your credit score go down. This is because there are certain scorecards or “buckets” within each credit scoring model that categorize consumers based on what is in their credit file and calculate their score differently depending on what bucket they are in.
As a hypothetical example, let’s say you have one collection on your file and you get that collection deleted. Perhaps you used to be in a scorecard of consumers with one or more major derogatories on file and after the deletion, you get reassigned to a different scorecard in which the consumers have no major derogatories. Since you are now in a higher bucket, your credit score would be calculated differently, and your score could actually decrease compared to what it was when you were in the lower bucket.
How to Remove Collections Without Paying
The only legitimate way to get an unpaid collection removed from your credit report is if the collection is more than seven years old or if it is being reported incorrectly.
If the collection is older than seven years, it should have been removed from your credit report already, so you can dispute that account with the credit bureaus to have it removed.
If the account is being reported inaccurately, such as if the date of first delinquency or the date opened on your credit report is wrong, you can also dispute the account and have it updated or removed as described above.
Conclusions on Collections
If you have a collection account on your credit file, you might end up with bad credit for a while, but it’s not the end of the world. Collections must be removed from your credit file after seven years whether they were paid or not, and the damage to your credit score will lessen as the collection ages.
Some credit scoring models don’t count paid collections against you, so you might see a credit score increase after paying off a collection. Alternatively, you could try to negotiate a pay for delete agreement with the debt collector.
If you have an old or inaccurate collection on your credit report, you can dispute this with the credit bureaus and have it corrected or removed.
Finally, the best thing to do to help your credit recover after a collection is to focus on building credit and maintaining a positive credit history going forward.
Under federal law, you’re entitled to a free credit report if a company takes adverse action against you, such as denying your application for credit, insurance or employment, and you request your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company that supplied the information about you. You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud. Otherwise, a consumer reporting company may charge you up to $9.50 for additional copies of your report.
Under state law, consumers in Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey, and Vermont already have free access to their credit reports.
If you ask, only the last four digits of your Social Security number will appear on your credit reports.
Establishing a Credit History
If you’re denied a loan or credit card because you have no credit history, consider establishing one. The best way is to apply for a small line of credit from your bank or a credit card from a local department store. Make sure you list your best financial references. Make payments regularly and make certain the creditor reports your credit history to a credit bureau.
If Your Spouse Dies
Under the ECOA, a creditor cannot automatically close or change the terms of a joint account solely because of the death of your spouse. A creditor may ask you to update your application or reapply. This can happen if the account was originally based on all or part of your spouse’s income and if the creditor has reason to believe your income alone cannot support the credit line.
After you submit a re-application, the creditor will determine whether to continue to extend you credit or change your credit limits. Your creditor must respond in writing within 30 days of receiving your application. During that time, you can continue to use your account with no new restrictions. If you’re application is rejected, you must be given specific reasons, or told of your right to get this information.
These protections also apply when you retire, reach age 62 or older, or change your name or marital status.
Kinds of Accounts It’s important to know what kind of credit accounts you have, especially if your spouse dies. There are two types of accounts — individual and joint. You can permit authorized persons to use either type.
An individual account is opened in one person’s name and is based only on that person’s income and assets.
If you’re concerned about your credit status if your spouse should die, you may want to try to open one or more individual accounts in your name. That way, your credit status won’t be affected.
When you’re applying for individual credit, ask the creditor to consider the credit history of accounts reported in your spouse’s or former spouse’s name, as well as those reported in your name. The creditor must consider this information if you can prove it reflects positively and accurately on your ability to manage credit. For example, you may be able to show through canceled checks that you made payments on an account, even though it’s listed in your spouse’s name only.
A joint account is opened in two people’s names, often a husband and wife, and is based on the income and assets of both or either person. Both people are responsible for the debt.
Account “Users”
If you open an individual account, you may authorize another person to use it. If you name your spouse as the authorized user, a creditor who reports the credit history to a credit bureau must report it in your spouse’s name as well as in yours (if the account was opened after June 1, 1977). A creditor also may report the credit history in the name of any other authorized user.
If You’re Denied Credit
The ECOA does not guarantee you’ll get credit. But if you’re denied credit, you have the right to know why. There may be an error or the computer system may not have evaluated all relevant information. In that case, you can ask the creditor to reconsider your application.
If you believe you’ve been discriminated against, you may want to write to the federal agency that regulates that particular creditor. Your complaint letter should state the facts. Send it, along with copies (NOT originals) of supporting documents. You also may want to contact an attorney. You have the right to sue a creditor who violates the ECOA.
When consumers ask me questions about their credit reports it’s normally about how to get an item removed or corrected. Sometimes, however, I do get questions about having information added to a credit report. This type of question brings up an interesting concept, which is whether or not consumers have the right to certain credit report information or even the right to a credit report at all.
Derogatory items on your credit report can be a big problem for your finances. These negative marks can stay on your 
