Because a credit report is like a report card that basically says to lenders, “Here is how good I am at repaying my financial obligations,” it is something you need to have in order. Roughly one-in-four consumers have a “bad credit score” that’s below 600. But in spite of any past financial troubles, no matter how severe, you can clean up your credit report with time and a little TLC.
This list contains items you don’t want to have on your credit report. If you have any of these marks on your file, it’s a good idea to work towards improving your credit sooner, rather than later. Although these marks generally stay on your credit file for a long time, you can still improve your credit if you focus on paying your obligations on-time from this moment forward.
When you go a long period of time without making a payment on a credit account, the creditor may end up charging-off the debt. This usually occurs after around six missed payments and this simply means that the company does not think they are going to receive payment from you. So, for tax and accounting purposes, they have decided to cut their losses.
This usually does not benefit you, however, with the option of simply avoiding the debt forever. Not only do you generally still owe the debt, you now have a really bad mark on your credit report that you may not be able to get rid of for quite a long time.
In most cases, the best course of action is to pay the debt and also, improve your credit by paying your other obligations as scheduled, keeping your utilization on any other credit cards low, and ensuring you don’t have any charge-offs in the future.
This type of mark on your credit file is pretty straightforward — it means your account has been sent to collections. What can you do about this? Unfortunately, this type of negative mark may be stuck on your credit file for quite a long time (up to 7.5 years) as well.
Paying the account is often the first step to improving the situation as the account will then go from an “unpaid” collections account to a “paid” account. Although paying the account may not have a significant impact on your score, it may look better to a lender who’s reviewing your credit history and also potentially stop the collection agency or creditor from suing you. Also, according to Credit.com, the newer Vantage Score 3.0 ignores paid collections accounts.
If a creditor does take legal action, they may obtain a judgement, which is another mark you don’t want on your credit file. Depending on the nature of the judgement and where you live, this may result in wage garnishment or another undesirable method of collecting the debt.
3. Tax liens
We can’t run from taxes because sooner or later, they’ll catch up in a big way. A tax lien occurs when the tax man lays claim on some (or all) of your property because you didn’t pay the property, income, or other taxes you were supposed to. These liens can come from the IRS, state, or even local government.
Like most public records, these liens can stay on your credit file for a long time (seven years or so), and the best way to move forward is to pay the tax debt or, if possible, work out an arrangement with the tax man and stick to it.
Nearly 1.1 million foreclosures were filed in the U.S. during 2015. Many people build credit history in hopes to buy their dream house. But, if they are unable to make payments on that house, they may end up losing their home and being stuck with a foreclosure on their credit file. This makes it more difficult to purchase a home in the future.
After a foreclosure, Freddie Mac suggests finding an affordable place to live and placing focus on rebuilding your credit. You may also want to talk to a credit counselor or financial adviser about how to improve your financial situation.