You ran into a few problems with credit and now you have negative accounts listed on your report. Derogatory information no longer appears after seven years, so you may be tempted to wait it out as a way to repair your credit. However, you run into several major issues when you take this approach.
1. Creditors Reselling Debt
Once you miss a few payments on an account, a creditor typically claims a loss on the debt through a process called a charge-off. They may sell the account to a collection agency. This company attempts to get payment for the delinquencies. If they’re unsuccessful, the debt may pass to other debt collectors. These accounts may linger on your credit report, particularly if you make a payment to one of the businesses. You may get stuck waiting several additional years past the seven-year limit due to this activity and debt reselling.
You also get into a position where it’s difficult to keep track of the agency holding your debt. Some scam companies may act as though they are the responsible party, but they’re simply trying to get your personal information. With identity theft on the rise, you put yourself at risk.
2. Delayed Drop-offs
Why repair your credit when the negatives will just go away in seven years? Well actually, your bad debt doesn’t disappear from a credit report when the account reaches seven years in total. It’s calculated based on the date of the first delinquency, which is when you began missing payments. If you skipped several months then attempted a payment plan with the company before the charge-off, you may end up adding months or years to the predicted drop-off rate.
3. Multiple Listings
Another issue with waiting out seven years instead of repairing your credit, is the number of negative account listings you end up with on your credit report. You may only have one charge-off, but you can have the original listing, plus another one for every collection agency that purchased the debt. Waiting it out actually causes you to accumulate even more bad debt. Time is of the essence when you need to repair your credit. These entries bring down your credit report and can make your credit-worthiness look worse than it is.
4. Legal Consequences
You are legally liable for the debt you incur, even after the original creditor charges the amount off. The company has a certain statute of limitations in which they can take legal action against you for the account. This period varies from state to state but lasts for several years. You can get served with a lawsuit for the full amount, plus legal costs. Not only do you need to go to court, but you get a judgment against you that also ends up on your credit report.
5. Financial Consequences Costing You Thousands
Bad credit does more than stop you from getting credit cards. You end up with higher interest rates on mortgages, personal loans and car loans, if you can even qualify for them at all. Insurance companies use credit scores as part of their risk profiling, so you get a higher premium when you pick up vehicle or home insurance. Some creditors may place a wage garnishment or bank account lien on you after winning a judgment. You get money taken out of your paycheck or directly from your checking account, which can have disastrous consequences if it happens at the wrong time.
If your delinquent accounts come from the same company that holds your checking or savings account, it may end up pulling money from your accounts to cover these costs.
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6. Career Consequences
Government contracting often requires a security clearance for employees. If you have significant debt, you may not qualify for the right level to get the job. Many companies, particularly those in the financial industry, also look at your report as part of the hiring process. They may feel that many collection accounts show a lack of responsibility. To think you could be fully qualified but not get the job because you didn’t repair your credit.
7. Personal Consequences
Finding a place to live becomes difficult with bad credit. Landlords look through credit reports to determine whether you can afford to live in the apartment and whether you would be a good tenant. If they see a lot of charged-off accounts, you could get passed over for other applicants. Most professionally managed properties look at this information, so you would have to search out a private landlord instead.
The stress associated with bad credit is also significant. You have to worry about constant application rejections, wage garnishments, lack of access to credit products and an inability to get good rates on anything. In an emergency, you can’t turn to a credit card, which leaves you at the mercy of predatory lenders.
Since you can’t get credit cards, you don’t have access to incentives such as cash back, rewards points, roadside assistance and travel insurance. If you do qualify, you may have to pay an annual fee to keep the card open or secure the credit limit with your own money.
Sitting back and waiting for everything to blow over works well in a natural disaster, but it’s not a great tactic when you need to repair your credit. You face legal action, personal consequences and financial instability when you aren’t proactive about your credit health. Start looking into credit repair assistance, so you don’t have to put your life on hold for seven, 10 or even 15 years.