There are a number of things that have the ability to negatively affect your consumer credit report, including bankruptcy, foreclosure, collections, past due payments, late payments, repossession and credit rejections. Negative credit can stay on your credit file for up to seven years. Even worse, bankruptcies can remain on your credit report for 10 years. Needless to say, the process of restoring your credit can be quite difficult. Making it even more challenging is the fact that sometimes the act of paying off a debt can actually hurt your credit score.
Why Is Your Credit Report So Important?
Each of the three major credit bureaus (Equifax, TransUnion and Experian) uses a different reporting form. Whenever you apply for a loan or any type of financing, a credit report is pulled from one of these agencies. While there are hundreds of credit bureaus in the U.S., virtually all of them are affiliated one of the three big ones. These institutions are not affiliated with the government. They collect and maintain information on the majority of Americans and sell their personal data for money.
The three major credit reporting agencies receive your personal information through your creditors. If you don’t pay your debts on time, this will show up on your credit report. The lender who gives you credit will report this listing to one of the major credit bureaus. If you apply for a loan and your credit report look bad, your application may not get approved.
The credit report includes all regular credit lines, as well as court records, collection accounts, mortgages and credit inquiries. Most creditors are not allowed to show you your own credit report. But you can purchase this from the credit bureau for a price. Credit reports are very difficult to read because the information on them is listed in an unfamiliar code. Whether you apply for an auto loan or you want to buy health insurance, your credit report plays a major role. Additionally, many employers will check your credit before hiring you.
Most people believe that they can improve their credit score by paying off debt. However, when you pay an outstanding debt, your account status will be changed to “paid was late,” “paid was charged off,” or “paid collection,” which will stand out as negative listings. But what is the meaning of these terms?
It is believed that the best way to have a collection account deleted from your credit report is to pay it off. This is just a myth. When you pay a collection account, its status is updated to show that it is now paid. If the original debt was reported to the credit bureaus, the paid debt will show up on your report. Collections affect your credit score significantly. The only way to solve this problem is to have the entire account deleted from your credit file.
Paid Was Late
This listing on your credit report indicates that an account was in delinquency status but was brought up to date. Every time you make late payments and this data is sent to the major credit bureaus, it will show up on your credit report.
Paid Was Charged Off
When you pay an outstanding, delinquent debt, your account status may change to “paid was charged off.” This indicates that the debt has been satisfied and no longer applies. “Paid was charged off” is a better mark than the other aforementioned account statuses, but it still stands out as a negative listing.