When denied credit due to serious delinquencies, it sends a message that lenders are not willing to risk lending you money at any price. They know that any judgments or collection activity that you have had in the past are indicative of likely defaults on new debts in the future. Credit bureaus refer to court judgments as derogatory public records.
|“Serious Delinquency, Derogatory Public Record or Collection Filed”||Credit Score Risk Factor Codes|
Serious delinquencies result in charged off debt. Those debts are turned over to debt collectors for pennies on the dollar, meaning that your lender had to record a loss on almost all of the debt that you owed.
Debt collectors may pursue judgments to force repayment. Depending on the laws in your state, those judgments may result in levies of your bank accounts, liens on your property or wage garnishments. These items wipe out nearly all of the 35% of your credit scores that measure payment history.
Lenders can see that your previous creditors endured substantial cost trying to pursue repayment of those debts. They want to avoid putting themselves in a similar situation.
There are related risk codes that can cause additional harm to your credit scores. Penalties can also result from having a high number of accounts with delinquency. If the derogatory public records or collection activity is too recent, then you can lose more points. Even if your situation has not yet escalated to collection agencies or legal action, you still can be penalized based on the level of delinquency on your accounts. Lenders know that accounts more than 90 days delinquent have a very high risk of default.
When these severe records are reported to the credit bureaus, the impact can be immediate and harsh. Getting a score above 600 can be very difficult when you have experienced serious delinquencies and other collection or legal action.
The result is that you can forget about getting approved for new credit with reasonable terms. It may take a few years before your credit has a chance to recover enough to justify using credit for larger purchases.
In the meantime, you should avoid applying for new accounts and take care of any credit accounts that are still open. Even with serious delinquencies or collection activity on your credit record, you can still rebuild your credit if you keep other accounts in good standing. Your good accounts will eventually outweigh the effects of older delinquencies and the resulting derogatory records.
You may have good reason why you fell behind. Perhaps you lost your job or took a major pay cut. Regardless of the reason, the financial hit to your creditors is still substantial. You will have to prove that your situation was caused by unusual circumstances rather than poor consumer behavior if you want to rebuild your credit. The only way to prove this is to take care of your remaining credit and resolve prior defaults. Make sure that you know how to approach old debts, since some actions can actually make the matter worse.
If you still have accounts that have not gone to collections and you are still having trouble making your payments, you should contact a financial counselor immediately to see if you can prevent charge-offs. They may be able to intervene and get those accounts restored to current status while helping you with a lower monthly payment.
Serious delinquency, derogatory public record or collection filed is credit bureau risk score reason 22. NextGen scores ignore this factor, relying instead on the closely related code D8. For more information on credit scoring, see the complete list of credit score factors.
Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.
Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.
In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.
Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."