Lenders, including banks, mortgage companies, credit card companies, and car loan dealers, use your credit score to determine the amount of risk that they are undertaking if they choose to provide you with financing. With possible scores between 300 to 850, a credit score reveals an individual’s history in being responsible and paying his bills on time. While we are well aware of the significance of credit score, we often do not know how various long transactions, payoffs, or unpaid installments affect our credit score.
Let’s look at these below.
Hard Inquiries
The hard inquiry appears on your credit report every time you apply for a credit card, and the company runs a query on your credit score to see if you are a risk or not. Hard inquiries remain on the credit report for 24 months but most significantly impact your score in the first 12 months. When an inquiry is made on your account, bureaus assume that you are applying for a lot of credit cards, and you might be in a bad financial situation.
Late Payments
These are the payments in which a borrower goes delinquent for a 30-day or 60-day period. An amount that has gone 30 days past due can seriously affect your credit score and may bring it down by 100 points. Late payments stay on your credit report for up to seven years. If you are unable to make a payment even after 180 days, the creditor may charge it off and pass it to a collection agency, which will affect your score further.
Foreclosures
As per Fair Isaac and Company (FICO), a foreclosure will stay on your credit report for up to 7 years, and it is one of the items that will most severely impact your credit score. This information directly impacts your FICO8 and FICO mortgage score, which are used most often for assessing an individual’s credibility as a mortgage borrower. The best way to fend off the damaging impacts of a foreclosure is to avoid it altogether. However, if it cannot be avoided, just make sure it does not reflect on your credit report after seven years.
FICO Mortgage
Foreclosures should be avoided as far as they can be, so if you feel that you may fall behind on your payments, you should consider refinancing your home mortgage in order to reduce your payments.
Currently, the mortgage rates are below 4%, and it’s a good time for homeowners to consider lowering their interest payments. A foreclosure will remain on your credit report for seven years. Still, most lenders will be willing to extend you a home mortgage after two to three years of foreclosure if other factors on your credit report are positive.
Collections
Collections remain on your credit report for seven years but are most impactful for the first 12 of the 24 months. A collection will lower your credit score by 20 to 50 points.
Collections remain impactful till the end of the third and fourth year and become less impactful by the fifth year, and after that, they are taken off your credit report. If the claim of the creditor is genuine and you have missed a payment, you must try to settle the payment as early as possible while if it has been misreported, you can write to the creditor and dispute the claim in writing.
Bankruptcies
Bankruptcy should be exercised as the last option as these are public records that remain on your profile forever. However, bankruptcies stay on the credit report for 
up to 7 years, and a second bankruptcy will remain on your credit report for 14 years. Filing for bankruptcy can bring your credit score down by 200 points.
A common myth is that a bankruptcy will wipe off the previous debts from your credit report. In reality, these accounts will remain on your credit report for seven years and will continue to impact your credit score, but its impact will minimize overtime.
Civil Judgements
Anything like a civil judgment or tax lien is public records for life as they are rarely updated and continue to damage an individual’s score even after the claim is released. However, in 2015 Equifax, TransUnion, and Experian settled a lawsuit filed by a group of attorneys who stated that imprecise credit reports were hurting several hundred consumers.
As a result, the bureaus agreed to phase in several changes that would reduce the number of “mixed files” and make several procedural changes geared at improving the reliability of credit reports. A special reference was made by the attorneys to medical claims, which were reported as unpaid or severely late by medical practitioners even after the payments were made by the insurance companies.
Fair Credit Reporting Act
As per the Fair Credit Reporting Act, after seven years, any unfavorable information should no longer be reflected in the credit report. This seven-year period starts from the date the first payment went delinquent.
Consider, for example, that you are a borrower, and you took a loan from Bank of America in February 2013, and you missed a payment starting March, but you fixed it six months later in October, and next year you again went overdue for 30 days in June 2014. If you are wondering what date will be considered as the date of the missed payment, then it will be the date of the last missed payment or from the most recent period.
Positive Information
The good news is that positive information stays on your report for the longest duration. If there are any good accounts that you managed 15 years ago and you made your payments on time, it will reflect positively even 15 or 20 years later.
