Credit Penalties: Getting Back on Track

Credit Penalties: Getting Back on Track

A substantial drop in your credit rating is a common result of financial stress. Although minor mistakes, like late payments and some delinquent accounts can cause a slight decrease in your credit score (want more information on your credit score? click here), other issues can cause significant problems. For instance, any debt settlements, bankruptcies, and foreclosures will remain on your credit report for several years, impairing your ability to achieve financial goals.

Fact: The worst credit penalty that you can suffer from is an unpaid tax lien, it will remain on your credit report for 15 years.

Even though you’re unable to eliminate any credit penalties from your credit report, you can still improve your credit while waiting for the penalty period to finish. Instead of waiting for the penalty to expire, you can take a proactive approach and rebuild your credit to enhance your financial position.

Where do You Find These Penalties?

How do you determine what a credit report penalty is? It’s simply any negative feature or action that is included on your credit report, reducing your credit score.

The following are examples of penalties you may often see on your credit report:

  • Bankruptcies
  • Foreclosure
  • Court judgments regarding back child support/unpaid alimony
  • Late payments in your credit history
  • Tax liens
  • Charge-offs
  • Settled debts
  • Credit limit overages

Learn how to read your credit report here.

Making Sure Your Credit Report is Error Free

Most individuals rely on their financial institutions and trust in what they say. For instance, we assume that lenders and credit reporting bureaus are aware of what they’re doing, and are keeping accurate information regarding your credit report.

Unfortunately, sometimes there can be mistakes on your credit report. More importantly, these minor errors can affect, and even cause a significant drop in your credit score.

Outdated penalties are one of the most common errors made on credit reports. This will occur when you’ve encountered a serious, legitimate penalty, such as bankruptcy or unpaid taxes. However, once the penalty period has passed, it can be left on your report, even though it should have been removed immediately.

Credit Penalty Time Periods

In the United States, all credit penalizations are given a specific time frame in which they can appear on your credit report. Debt settlement, foreclosure, and Chapter-13 Bankruptcy can remain on your credit report for up to 7 years. However, a Chapter-7 Bankruptcy can stay on your report for up to 10 years.

Fortunately, the burden of these penalties, as well as how much they influence your credit score, reduces throughout the penalty period. For example, a debt settlement penalization that was added to your report yesterday has a much stronger, negative impact on your credit compared to a penalty added five years ago. This is even more accurate if you undergo the proper steps to rebuild, and even increase your credit score, once the penalty has been implemented.

Dealing With Credit Penalties

If you’ve recently suffered from one of these harmful credit penalties, and you’re trying to improve your credit, consider the following steps:

  • Request a copy of your credit report and credit score.
  • If you notice anything that could be a mistake, get in contact with your creditors and the credit reporting bureau immediately.
  • Begin restoring your credit as soon as possible. Reduce your debt by paying your bills in a timely manner.
  • All positive actions you take, from this point forward, will counteract the penalizations that you acquired in the past.

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