Your credit score is factored from a number of factors that identify potential risks based on your credit history. Some factors are more severe than others. When this factor is listed, it means that not only did you fall seriously delinquent on an account, but that it resulted in additional collections activity or legal action against you. This is listed as “serious delinquency and public record or collection filed.”
|“Serious Delinquency, Derogatory Public Record or Collection Filed”||Credit Score Risk Factor Codes|
You already get penalized by having a serious delinquency on your credit report (risk reason 39). You also get penalized if you have a serious delinquency, derogatory public record or collection filed (risk reason 22). This second risk reason is very similar to reason 38.
The difference is that reason 38 identifies the severity of damage to a single credit account as having extended beyond delinquency and into collections and legal action. It is likely that an individual credit report that shows reason 22 would also show reason 38, both of which are very detrimental to your credit scores.
This double-whammy is one reason that your payment history comprises a full 35% of the importance in credit scoring formulas. As a credit account goes from current to delinquent, from delinquent to default, default to collections and collections to judgment, you are increasingly penalized at each stage. Risk score reason 38 (serious delinquency and public record or collection filed) identifies the last stage of an account’s demise.
Once you see an account at this stage, there is little you can do to reverse the damage to your credit scores. Paying the account off in full is ideal, but rarely an option for someone who has struggled with multiple debts. Negotiating a debt settlement offer might gain a couple of points, but it is an expensive option that could trigger an additional income tax liability. A debtor might be best off by negotiating a pay for deletion agreement, which could remove some of the derogatory information from credit reports altogether.
Time might be your best ally, but it doesn’t happen quickly. It takes 7 years for negative account information and collection records to fall off of your credit report. It can take 10 years for derogatory public records to fall off, which means you might pay a costly penalty for a long time. A debtor in this situation has likely missed their window of opportunity to pursue debt help through credit counseling. A counseling session can help, but it is probably too late to benefit from a debt management program once accounts have been neglected for so long.
Note: Serious delinquency and public record or collection filed is credit bureau risk score reason 38. NextGen scores use code D8 for this factor.
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."