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Credit reports might be pretty easy to obtain, but to read? That’s another story. Besides the fact that you might see accounts you don’t recognize simply because of the way they are named, or even credit cards you forgot you ever had, some of the details of those accounts seem to be written in code.

And, to an extent, they are. That doesn’t mean you can’t figure it out, though. Since there’s a good chance you’re most worried about negative accounts, let’s start there. Here’s a guide to understanding what negative accounts look like on a credit report.

What Is a Negative Account on a Credit Report?

First of all, it’s important to know that everyone has three different credit reports – one from each of the major credit reporting agencies (CRAs): Equifax, Experian, and TransUnion. You can obtain one of each for free each year from AnnualCreditReport.com.

When you review your credit reports, there will be a few different types of negative information you might encounter. Potentially negative items on a credit report include:

  • Accounts that are in collections
  • Bankruptcy
  • Charged off accounts
  • Judgments*
  • Late payments
  • Tax liens*

*Tax liens and judgments used to show up on your credit report, but changes have been made to how they can be reported. This new requirement first resulted in all tax liens and public records that didn’t match the criteria to be removed from consumers’ credit reports. Since then, the three major credit reporting bureaus have opted to not report on these items for the time being.

Now, if you see anything on your report and that shouldn’t be there, either because the negative item doesn’t belong to you (not even as a cosigner) or because it’s being reported incorrectly, then you can dispute it.

For the items that are yours, it’s important to note that each one likely refers to a different incident. Each one also stays on your credit report for a specific amount of time. Now, let’s talk more about what they look like.

What Negative Accounts Look Like on a Credit Report

Credit reports are organized into various sections, which you can see in this template of a credit report from Equifax and this template of a credit report from Experian.

As you can see on both of these templates, bits of information are segmented into sections on your credit report. There’s your personal information at the top of the credit report, there’s a section for credit inquiries, and each account is separated into its own section. Here are a few snapshots from Experian’s template:

Image: Experian
Image: Experian
Image: Experian

Each credit report displays information slightly differently, but here’s what you’re looking for in general:

  • Anything other than “OK” or “paid” or “paid as agreed” underneath the payment history section of an account. Any late payment can hurt your credit scores, even if the payment is only 30 days late.
  • Accounts that are listed as “settled.” Although settling a debt is one way to close the loop on a defaulted account, it will still show up on your report for a number of years as a potentially negative item.
  • Judgments, bankruptcies, and tax liens will all show up separately on your credit report, and they’re all considered negative items.
  • Any account that’s been sold to a collections agency will show up on your credit report as a collections accounts, and that shows the person reading your report that you defaulted on an account to such a point that the lender sold it to someone else.

When you see negative items such as these on your credit reports, don’t panic. Although each item can remain on your report for seven to 10 years, the effect they have on your credit scores will decrease as the years go on. Here’s why.

The Sliding Scale of the Impact of Negative Items on Your Credit Report

So far you know that there are three credit reporting agencies, but it’s important to note that there are also two different major credit score companies: FICO® and VantageScore®. VantageScore®, the newer of the two, has a chart showing the sliding scale of the impact of negative items on your credit report, which you can see here.

What the chart indicates is that the impact a negative item has on your credit scores decreases as the years go on. For example, VantageScore®’s chart shows that, although a bankruptcy shows up on your credit reports for anywhere from seven to 10 years, the weight it has on your credit scores drops significantly after two years. In the case of missed payments and defaults the impact drops significantly between one and two years.

This is good news for anyone who’s worried their imperfect credit history might prevent them from improving their credit scores. No matter what kind of credit history you have, solid credit-building habits combined with the passage of time can help you get to a score that opens doors for you rather than closes them.

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