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Expert Q&A

In credit scoring, a good payment history trumps all

Summary

Don’t worry about removing an old delinquent account from your credit report, our expert says. It’s more important to have a strong payment history than a long one

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Question for the CreditCards.com expert

Dear Credit Score Report,
I understand that the length of credit history has a huge positive impact on the credit score. Conversely, I also understand that a charged-off account has a huge negative impact on the credit score. I also know that the older a charged-off account becomes, the less negative impact it has.

I am dealing with the following dilemma: My credit report indicates that my oldest account is 21 years old. Unfortunately, this account is also a charged-off account. It still appears on my credit report, despite becoming delinquent in 1990. I can easily dispute this item and remove it from my credit report. However, the second oldest account that appears on my credit report is only 6 years old.

If I remove the old charged-off account, the length of my credit history would be shortened considerably. This would decrease my score. However, this same action would also remove an old negative item from my report, which would increase my credit score. The question is this: Which action should I take to maximize my score? Should I leave the charged-off account in my report and not dispute it for the sake of having a longer credit history, or remove it for the sake of not having a negative item in my report? — Ben

Answer for the CreditCards.com expert

Hey Ben,
Given the choice between a longer credit history or a better record of on-time payments, experts say you should always strive to demonstrate that you pay bills promptly.

In your case, the continued appearance of that charged-off account appears to be the result of a mistake.

Experts agree that the appearance of that charged-off account will be more harmful to a credit score than a short credit history. “Payment history always trumps age,” says Rod Griffin, credit bureau Experian’s director of public education. “Late payments are far more important to credit scores than how long an account has been opened,” he says. That’s because of how credit scores are calculated. For example, the widely used FICO credit score considers payment history to be worth about 35 percent of your score, while the length of your credit history is worth about 15 percent. Your mileage may vary, as they say, depending on what else is on your report.

“The reason longevity is important is to see how you managed your accounts during good times and bad. Unfortunately, in this case it was not handled well,” says Michael McAuliffe, president of nonprofit credit counseling agency Family Credit Management.

Regardless of what caused you to become delinquent, you should take steps to improve your payment history. Otherwise, it won’t be only your credit score that suffers. “The charge-off will also be seen by landlords, employers and some lenders who look past the score and view this type of activity as a red flag,” McAuliffe says. In other words, that unpaid account could impact your ability to rent apartments, land jobs and borrow money. That knowledge should fuel your drive to delete that charge-off.

There may be a reason for the continued appearance of an account that became delinquent back when President George H.W. Bush was in office. Otherwise, it should be long gone. “If the account became delinquent in 1990 and was never again current, the lender likely would have charged off the debt long ago, and it would have been deleted automatically,” says Experian’s Griffin. Under the Fair Credit Reporting Act, missed payments can remain on a credit report for up to seven years. In your case, it’s been around three times that long.

So why is that account still showing up? Perhaps though you missed a payment in 1990, your account remained open and you later began to make payments again, causing the debt to be re-aged.  Re-aging a debt means the clock starts anew on the statute of limitations, extending the time that a creditor may use the courts to collect that debt. Then, at some point later on, you stopped making payments, causing the account to be charged off. As a result, your delinquency date would actually be sometime later than 1990. “If the original delinquency date is more recent, disputing the account will not result in it being deleted because it is being reported accurately,” Griffin says. “While anything is possible, it’s hard to imagine that an account would remain on a report for 20 years or more after being charged off. Anything is possible, but it is highly unlikely.” Of course, if you are certain that account was charged off more than two decades ago, you should dispute its appearance with the credit bureaus.

You may not solve the mystery of the account’s continued appearance, but by knowing payment history is more important than history length, you can still improve your credit score in the long run.

Good luck!

–Jeremy

See related:How your FICO score is determined: Payment history, How your FICO credit score is calculated: Length of credit history, Want accurate, negative info off your credit report? Good luck

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