The Real Story…
News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth
Credit Scores – Understanding the impact of negative information on your credit report…
As I wrap up this series on credit, I thought it would be useful to provide a summary of the negative information that can show up on a credit report along with an explanation of its impact and longevity. These are of course in addition to a history provided by each credit provider as to the promptness and regularity of meeting your credit obligations. That is, making your payments and making them promptly.
1. Charge-offs
Missing your payments for 6 months or more could cause your creditors to deem your account as uncollectible. When this happens, the creditor writes off the account and updates your credit report as “charged-off” or “written off and uncollectible.” Charged-off accounts remain on your credit report for seven years.
2. Debt collections
Not only will creditors charge-off your account after a period of non-payment, they may also hire a third-party debt collector to attempt to collect payment from you. Your credit report may or may not be updated to reflect a collection status. Sometimes the debt collector places an entry on your credit report or the original creditor places a note on your report indicating the account is in collection status. This type activity is an obvious red flag to those considering extending credit to you.
3. Bankruptcy
Filing bankruptcy allows you to legally remove liability for some or all of your debts, depending on the type of bankruptcy you file. Your credit report will reflect each of the accounts you included in your bankruptcy. Even though the bankruptcy information will remain on your credit report for seven to 10 years, you can sometimes begin rebuilding your credit soon after your debts have been discharged.
4. Foreclosure
If you default on your mortgage loan, your lender will repossess your home and auction it off to recover the amount of the mortgage. This process is known as foreclosure. When your home is foreclosed it can severely damage your credit, limiting your ability to obtain new credit in the future. A foreclosure will remain on your credit report for seven years.
Note: Foreclosures – Deduct 200 points from your score while Pre-Foreclosure Resolutions – (Short Sale or Deed in lieu of Foreclosure) – deduct 120 points from your score. So if you had a near perfect score of say 800 and then experienced a foreclosure your credit score would fall to 600… well below the score required in today’s market to obtain a mortgage. If your financial situation was brought about by special circumstances, such as medical expenses, you may qualify for relief sooner than the normal seven year period.
5. Tax liens
When you don’t pay property taxes on your home or another piece of property, the government can seize the property and auction it off for the unpaid taxes. Even if your home is foreclosed because of a tax lien, you are still responsible for the mortgage loan. Non-payment of the mortgage will also hurt your credit. Unpaid tax liens remain on your credit report for 15 years, while paid tax liens remain for 10.
6. Lawsuits or judgments
Some creditors may take you to court and sue you for a debt, if other collections fail. If the lawsuit is accurate and a judgment is entered against you, it will remain on your credit report for 7 years from the date of filing, even after you satisfy the judgment.
