Wrongly reported old delinquencies can keep credit score low
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Dear Speaking of Credit,
My credit score has been hovering around 650 for almost two years and I can’t seem to get it to go back up. A little over three years ago, I started taking control of my finances. Before then I had multiple late payments on my student loans (which stand at $85,000), and had a charge-off looming on my credit report.
However, I haven’t been late on a payment on anything for the past 3.5 years. I keep my credit utilization below 25 percent. And that charge-off is due to fall off my report in six months.
Are those old late payments from six years ago and the charge-off really the culprits? Should I expect a big jump in my credit report once those things fall off?
I’m just a little discouraged because I’ve been doing everything right for a very long time and haven’t seen my score budge at all. – Nick
I’d be worried too if my creditworthiness was steadily improving while my score remained stuck in the ditch.
From everything you’ve said – especially, the last delinquency being 3.5 years ago and current utilization under 25 percent – it sounds like your score should be higher, or at least moving in that direction.
The fact that it isn’t tells me there’s probably an error hiding somewhere on your credit report. But where?
Recent delinquencies matter most
When it comes to the many mathematical calculations that make up your score, none can cause as steep a score drop or keep a score down like the one that measures the length of time since your most recent delinquency.
- As part of the scoring hierarchy, payment history-related factors carry the most impact at 35 percent of your score.
- Within that category, the recency of your last payment misstep tends to be among the most influential – more so than the number of late payments, their severity (30, 60, 90 days, etc.) or the amount you owe.
When rebuilding your score, this “time since” calculation can be your best friend with every month you stay on track with your monthly payments. It also can be your score’s worst enemy, should you slip up and miss even just one payment.
And then, as you’re about to see, there are situations in which the date of your most recent negative item could be preventing your score from improving by keeping it right where it is month after month – despite improvements to your credit picture.
How recent delinquencies are calculated
To measure the recency of your last delinquency, the scoring formula simply counts the number of months from the date of the last late payment to the present (the date of the score calculation).
This is why the dates associated with any such derogatory information, your charge-off in particular, are critical to your score. These dates include date reported, date of last activity, status date, assigned date (for collections), and some others that can vary by credit bureau.
The impact of wrongly reported errors
Since these dates are so critical to your score, so also is any error in their reporting to the credit bureaus by creditors.
- An incorrect date or simply the absence of a date of last activity or status date can seriously affect your score – and not usually in a good way.
- The wrong date reported can lead the score to treat a negative item as having occurred more recently that it did.
When a reporting error, either by the creditor or credit bureau, leaves a blank space instead of a date on the credit report, the scoring formula often substitutes information found elsewhere on the report. Most of the time this works – but sometimes it doesn’t.
- For example, your charge-off more than six years ago should reflect a date of last activity from more than six years ago. If so, you’ll receive more points for this factor than with a more recent date.
- Or, as often occurs, if the date of last activity or other key date has simply been omitted, the scoring formula may then look to another date, such as the date reported. If the replacement date is more recent than the missing date, your score is not likely to be where it should be.
Video: Disputing credit report errors
The risk of rolling reporting dates
Continuing with this scenario, say there is no date of last activity and the charged-off account was last reported to the credit bureau just one month ago. Here is where your score could seriously suffer if the date reported is used instead, as, to the scoring formula, it will appear as if you defaulted on a debt last month instead of six years ago.
The situation can get worse if that old charge-off continues to be reported to the credit bureau every month without that date of last activity. That’s when a “rolling” date reported, due to monthly updates, causes your score to perpetually consider the account as having been charged-off the prior month – the shortest length of time possible – rather than six years ago.
Finding the score-damaging culprit
Fortunately, you don’t have to become an expert in credit scoring and reading credit reports to make sense of how each of these dates operates in various situations. There’s an easier way to learn what’s keeping your score from improving.
- Every credit score provided to a consumer or lender is accompanied by up to five score factors – also known as reason codes – that point out, in order of impact, which calculations are keeping your score from being higher.
- In other words, the factors listed represent the scoring calculations experiencing the greatest difference between the number of points possible and points achieved, with the first factor being the one doing the most damage, and so on.
Again, using this same scenario with your charge-off and a misreported date, your top two score factors might look something like this:
- Serious delinquency.
- Time since most recent delinquency is too recent.
The second item would be appropriate for someone with truly recent delinquencies, such as within the past couple of years. However, you should no longer be seeing this factor as a top reason why your score remains so low.
Yet, regardless of these or any other factors, and even if the above examples don’t apply to your credit report and score, the simple fact that your score doesn’t seem to change while your credit gets better means something on your credit report isn’t right.
Correcting a reporting error
Unfortunately, this leaves the burden on you to identify where any errors might lie and initiate some corrective action. What to do?
- First, review the score factors you received with your latest score.
- Then get a copy of your credit report from the credit bureau used for that score from AnnualCreditReports.com or, if that score came from TransUnion, through CreditCards.com.
- Review it top to bottom, focusing on dates associated with past delinquent accounts.
- If you find any errors or omissions of key information, submit an investigation to the credit bureau, providing any documentation showing how it should be reporting the information.
- You’ll also want to check your credit reports from the other two credit bureaus, as a creditor reporting an error to one credit bureau is likely to be making a similar mistake with the others.
With any corrected information, or simply the upcoming removal of the charge-off from your credit report, expect to see some score improvement. Just how much is hard to say, however.
Once your credit is being accurately reported, your score should start improving steadily to reflect your improving creditworthiness.
Good work on the credit rebuilding so far!
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