The Impact
of Negative Credit
What is negative credit?
Negative credit is created when you do not live up to your contractual obligations. It finds its way onto your credit report in many different ways. The majority of negative items are due to fiscal missteps by you such as making your payments late. A much smaller but still significant number of entries come from errors, fraud, and other abuses of the system. Let’s look at each of these categories in a bit more detail.
Fiscal missteps, the most common cause of negative credit, are caused by actions often originated by you. This could be something as innocent as misplacing a bill and missing a payment as a consequence or it could be something as devastating as the loss of a job which leads to your house being foreclosed upon or you needing to declare bankruptcy. Anything you do which generates a late payment or causes a collection action to be taken against you will probably show up as a negative item in at least one of the major 3 credit reporting agencies file on you.
Errors can be caused in many ways. A loan payment is made on time but the bank made an error when they credited it. Or perhaps a credit reporting agency entered incorrect information on your credit report. These are both examples of the types of errors that may occur.
Fraud occurs whenever someone else uses your social security number on a credit application. By doing this, the lender is accessing your credit report and will make a decision based upon it. If the person doing this is committing fraud, that person will use that credit until it is full and then walk away from it. When the bank doesn't get paid, it reports to the credit reporting agencies that you are in default and you now have a negative credit entry through no fault of your own.
Abuses are a subset of fiscal missteps. Basically abuses are usually credit abuses. Some people have trouble controlling their spending and soon find that they have $20,000 or more in credit debt and not enough money to cover the bills. These abuses generally end in bankruptcy and destroy a person's credit rating for a very long time.
The good news is that no matter which combination of the above problems faces you there are solutions. You can definitely remove 100% of all errors and frauds with a few letters. You will find that many of your common errors can also be removed fairly easily. And, if you are not 100% successful, there are always simple ways to rebuild your credit in a reasonably short period of time.