Your credit report contains a record of most of your financial decisions. It impacts more of your life than you’d imagine – some parts that aren’t directly related to your finances. If you want to get a credit card or a loan, your credit report will be considered. That means your ability to buy a house or car is influenced by your credit report. Some prospective employers use credit reports to screen job candidates. Your current employer might pull your credit report if you’re up for a promotion or raise.
The credit report law allows anyone with a “permissible purpose” to pull your credit report. Chances are more businesses will find a reason to check your credit report before offering services to you, especially in cases where you receive the service first and pay for it later.
Since your credit report has such an impact on your life, it’s important that you keep it free of serious blemishes that make you a risky borrower, driver, or job candidate.
Worst Mistakes for Your Credit Report
The worst credit mistakes include foreclosure, bankruptcy, repossession, tax lien, student loan default, collection accounts, and credit card charge-off. Nearly each of these happens because you’ve become seriously delinquent on your accounts.
While a single missed payment can hurt your credit score, it typically doesn’t ruin your credit history and certainly won’t lead directly to any of these serious delinquencies. Instead, it takes several missed payments before any of these happens. You’ll typically have plenty of warning before a big mistake winds up on your credit report.
Prevent Bad Credit Report Entries
If you foresee problems making your payments, it’s best to contact your creditor or lender before you miss too many payments. Many banks have some type of program for customers who are unable to afford payments. For example, loans may allow you to go on forbearance or to defer your payments for a period of time. Or, you can try refinancing as long as you haven’t missed any payments. Consider consumer credit counseling to help out with your credit problems.
It’s important that you talk to your creditor while you’re still current with your payments. Some programs may be unavailable if you’re behind on your payments. Once you get behind, it’s extremely difficult to catch up again because you have to make up for all the months you missed payments.
What If It Happens to You?
Having a serious delinquency on your credit report will affect your borrowing ability for a few years, but it’s not the end of the world. Negative credit information can only remain on your credit history for a certain amount of time – seven years for most negative items and ten years for a bankruptcy.
What will also help is that lenders often give your most recent credit history the most consideration. A foreclosure that happened three or four years ago won’t look as bad if you’ve since paid your other bills on time.
Don’t give up on your credit history because you’ve experienced a serious setback. Keep paying the bills you can. Your credit will recover and after several years, your credit report won’t contain any record of your past mistake.