Your credit history exists on your credit reports with all three of the credit bureaus. For United States consumers, these major credit bureaus are Equifax, TransUnion, and Equifax. Delinquency on your credit report refers to any adverse financial action reported to the credit bureaus. How long these things will stay on your credit depends on a few factors, the major one being the type of delinquency committed. Keep reading to learn more about these delinquencies, their timelines, avoiding them, and improving your credit after they are reported.
Different Types of Delinquencies and Their Timelines
Here are a few of the most common types of delinquencies that are reported to credit bureaus and show up on credit reports:
Late Payments — Up to Seven Years
Anytime you have a missed payment and end up paying it late, that late payment will be reported and show up on your credit report. Your payment history is the most significant factor that impacts your credit scores, so it is essential that you make on-time payments. Some lenders, especially credit card companies and bad credit loan lenders, may have a grace period before your credit card or loan payment counts as late; talk to your credit card issuer or lender to be sure. Late payments remain on your credit for up to seven years!
Bankruptcy — Seven to Ten Years
Bankruptcy, Chapter 7 or Chapter 13, can be one of the most devastating things you can do for your credit and finances. It will bring a tier-one credit score down to a poor one and can take several years to repair. Even after rebuilding your credit score, having bankruptcy listed on your credit reports may hinder your chances of borrowing money. Chapter 7 bankruptcy will remain on your credit reports for 10 years, while Chapter 13 will stay on for seven.
Collections Accounts — Up to Seven Years
If you have missed debt payments, then your original lender may be able to turn to a collection agency or debt collector. They can either hire them to collect the debt for them or sell the debt altogether. Either way, once this happens, your credit account will become a collections account. If your account is in collections, chances are there is already a significant decrease in your credit score and reported delinquencies on your credit reports. An account sent to collections itself won’t harm your score, but it can look bad to anyone checking out your credit report for financial decisions. A collection account will appear on your credit reports for up to seven years after you pay off the account.
Foreclosures — Up to Seven Years
A foreclosure happens when you have a mortgage and cannot repay it on the due date repeatedly, resulting in loan default. Your mortgage company will then have the right to seize the property/home, which they can do through the foreclosure process. A foreclosure will hurt a credit score and will be reported. Foreclosures will remain on your credit for up to seven years.
Loan Default — Up to Seven Years
A default on a loan is one of the many things that can occur with several missed payments on a loan or credit card. Actions leading up to default and the default itself will have a significant negative impact on your scores. Each missed payment will be reported along with the loan default. A defaulted credit account will show up on your credit reports for up to seven years.
What To Do if There Is a Mistake on My Credit Reports?
Credit reporting errors are pretty common, so it is essential to check your credit reports often. Consumers are entitled to an annual free credit report from each credit bureau, and you should take advantage of this! Here are some common mistakes that can happen:
Common identity mistakes include incorrect names, phone numbers, numbers, and addresses. If accounts that don’t belong to you show up, it can signify identity theft. Additionally, sometimes someone with a similar name may be mixed up with you.
The Wrong Account Status
Sometimes accounts can show up with the wrong status. For example, if you have closed an account, it may appear as open. Or you may see something as your credit account when in reality, you are just an authorized user. There can also be mistakes with reporting of delinquencies even if you have paid your accounts on time.
Debt Balance Errors
Other common errors include the wrong balances on your credit accounts.
Typos/Data Management Mistakes
Sometimes things may show up more than once, have the wrong creditors, or re-listed information even after corrections.
You will have to file a dispute with the corresponding credit reporting agency to fix errors on your credit report. The first step you need to take is to contact them; head to their respective websites to get those specifics. You should also talk to the corresponding creditor about the mistake. After contacting your credit bureau, you can file a dispute, which includes stating the error and providing proof of the correction. A credit bureau will then have 45 days to respond to the dispute. You will then get a response that will carefully explain the decision. If you can corroborate everything you claimed, there should be no issue with getting the delinquency error removed from your credit report. Need more details and instructions? Here is our complete guide on fixing credit errors.
For your financial protection and progress, it will be best to avoid all delinquencies. Here are some strategies that go hand in hand with building a good credit score and managing your money wisely and can help prevent the delinquencies mentioned above:
Set up Automatic Payments for Your Bills
One of the easiest ways to avoid being late on your bills is to set automatic payments up on or before the due dates for your bills. This way, you have to worry about remembering due dates and juggling multiple payments. Just make sure that you are aware of what time in the month you have your bills go through, as you may want to space them out, so your entire paycheck isn’t gone when you need it.
Only Take Out Debt You Know You Can Afford
An important thing you can do to avoid loan default, missed payments, and collections, is to only borrow loans/credit cards whose monthly payments you know you can afford. Sometimes, money can be unpredictable, for example, if you lose your job. However, in most cases, you will likely not have to worry about those unexpected changes and should be able to plan based on your current income and financial situation. Before taking out any loan, calculate its monthly payment and make sure you can repay it comfortably.
Keep Your Debt Low
Having a lot of debt is just not a good idea. For one, it can be challenging to juggle multiple monthly payments, which may lead to missed or late payments. Another thing to be mindful of which debt impacts is your credit utilization. If it goes above 30%, it can harm your credit scores.
Build a Savings Funds
A savings fund can be a great safety net for your finances if things like income change. Having at least three months of savings at minimum is a great way to ensure financial security until you figure out your next steps. It can help you avoid high-cost debt and maintain payments on all of your bills.
Start Paying for Things Out of Pocket Rather Than Financing
Another strategy you can use to avoid delinquency on your credit is to pay for things out of pocket instead of financing them. Even if it means saving up overtime, paying for something out of pocket can help you stay out of debt. No debt also means not having to worry about everything that can go wrong with a credit account. Along with that, paying out of pocket is usually cheaper because it means no interest. If you struggle with bad spending habits, this spending strategy can also help you identify these habits and overcome them.
Create a Budget to Better Manage Your Money
Budgeting is a great tool that can help you manage your money for any long-term or short-term financial goal. Chances are that with a budget, you will be less likely to miss payments or take out an unaffordable loan option because you know exactly where your money is going. If you haven’t budgeted before, getting started can be simple, and there are several budgeting methods you can use!
Key Takeaways With Credit Delinquencies and Timelines
Delinquencies on your credit reports can harm your credit score and look like red flags for potential lenders. In general, delinquencies on your credit reports will remain there between a range of seven to ten years, sometimes falling off sooner than that. The good news is that you can easily avoid many of them, and if there are any mistakes with them, it is reasonably simple to get them corrected.
What are common credit report errors that I should look for on my credit report? | Consumer Financial Protection Bureau