Late fees will not affect a credit score, while a late payment history will — at least, until it drops off a credit report in seven years
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Dear Speaking of Credit,
According to credit report, American Express charged me a late fee on March 8, 2008. That should have dropped off my account as it’s been seven years plus 180 days since first late payment. AmEx says instead it will drop off next year, at the point when it is seven years after being 30 days late — Bob
Among other things, your question illustrates how confusing it can be trying to figure out how long negative information, such as late fees and late payments, will remain on your credit report and whether certain information is considered to be “negative” by data retention rules and credit scoring.
Much of this confusion can be attributed to the different sets of rules that determine how long the three types of negative payment history can remain on a credit report.
There are three main categories of negative information in the eyes of the Fair Credit Reporting Act (FCRA):
- Late payments/bad debts.
- Public records.
Notice I did not include late fees in the above list. That’s because the length of time late fees can be reported is not specifically addressed by the FCRA. Nor do late fees have any directly negative impact on credit scores, other than when included in account balances that help make up the score.
1. Late payments/bad debts
Delinquencies can remain on your credit report for up to seven years from the date the account first took on the latest derogatory status.
Delinquencies can include:
- Payments that were 30, 60, 90 or 120+ days late.
- Repossessions or foreclosures.
- Accounts included in bankruptcy.
- Other account conditions indicating debts written off as a loss.
For example, a credit card balance that first went 30, 60, 90 or 120+ days late before being charged-off in June 2009 would be removed seven years from the date it became a charge-off — June of 2016.
The 30-day late mark that AmEx says will fall off of your credit report in 2016 must have first appeared in 2009, since such information is automatically removed seven years after landing in your credit file. This means that your 2008 late fee would have been triggered by a late payment occurring about one year earlier than the 2009 AmEx 30-day delinquency. That 2008 late payment had either been removed from your credit report upon reaching the seven year mark in 2015 or had simply not been reported at all.
This is where that “seven years + 180 days” time period you mentioned comes in. The length of time a collection — bad debt that has been assigned to a collection agency — can remain on a credit report is measured using a somewhat different method. For collection debts, it’s 7.5 years — or seven years plus 180 days from the date of first delinquency (DOFD) leading to the collection.
The reason for adding six months to the otherwise typical seven-year retention period is that, rather than being the originator of a debt, a collection agency acquires debt that was already in existence, usually for at least six months. For this reason, the DOFD is used as a starting point for the seven-years-plus-180-days measurement.
3. Public records
The third type of negative credit information is the public record section of your credit report. For consumer credit reports, this includes tax liens, court judgments and bankruptcies:
- Tax lien: While specific requirements can vary by state, tax liens tend to remain on a credit report indefinitely when unpaid and, when paid in full, for seven years after the release (payment) date.
- Judgment: Whether paid (satisfied) or unpaid, seven years from the date filed.
- Bankruptcy: Chapter 7 bankruptcies are removed 10 years after the date filed; completed Chapter 13 bankruptcies are removed seven years from the filing date; Chapter 13 bankruptcies not completed are removed 10 years after filing.
What it means for your credit report and score
Regardless of how long it remains on your credit report, that 2008 late fee will continue to exert no direct effect on your score, while the 30-day AmEx late payment that is scheduled to come off in 2016 is not likely to be having much, if any, scoring impact.
If those are the only items on your credit report relating to late payments and you have no high credit card balances you should currently have a very good credit score. Or, if you do have some additional negatives, at least now you will have a good idea of how much longer they will remain on your credit report and continue to affect your credit score.