Your credit report and credit score should be a couple of your most prized financial assets. A solid credit history without any negative marks can save you hundreds of thousands of dollars in interest over your lifetime. Likewise, a few negative marks on your report can drop your score which in turn raises the cost of financing across all products like credit cards and home mortgages. With enough negative items on your report you can even be denied a loan completely.
As important as your credit report is, sometimes life happens and we slip up. It might be a little ding on your report from a late payment or something more serious like several missed payments and an account that has been charged off. These mistakes can be costly in the long run.
Considering how important your credit report is to your ability to acquire loans in the future, it is important to know how long these negative items will stay on your credit report. Will your payment that was two days late end up ruining your credit history forever? Will your account that has been charged off keep you from becoming a homeowner? Let’s find out.
Negative Items on Your Credit Report
Let’s start with the bad news first. Most of the negative items on your credit report will be on the report for seven years from when they first were reported.
That means a negative item that is first reported today will be on your credit report for seven years.
What types of negative items are there for your credit report? All are varying levels of your inability to pay your debts on time:
- Late payments (you paid, just not on time)
- Short sales (you repaid some of the loan, but the bank had to write off some of what you owed)
- Foreclosures (the bank writes off the full unpaid balance of the mortgage)
- Bankruptcies (all of your creditors wrote off all of your debt; these last seven years if Chapter 13 and 10 years if Chapter 7)
- Collections (a creditor sold off your debt to another company that tried to get you to pay)
All of these items, except in limited circumstances, will be on your report for seven years.
The Impact of Negative Items on Credit Report Over Time
While the negative marks on your credit history will stay there for seven years, they won’t pull down your credit score the exact same amount every single year.
A late payment today is significantly worse for your credit history and credit score than one from six years ago.
Additionally, the impact of negative items on your credit score isn’t as simple as plugging in the number of negative marks into a calculator and deducting points. Other positive and negative factors on your report can change how much or little your score is impacted by a negative item.
In short, having one slip up with a late payment won’t destroy your credit. Having other positive factors can mitigate some of the damage away. Likewise, piling up negative item after negative item can show creditors you cannot handle your financial obligations and really damage your score.
Have you found negative items affecting your credit score? What are some ways you made up for that disadvantage? Leave a comment!