Credit reporting, which is your credit reputation in print, is much different than bookkeeping, and each has a much different purpose.
- Bookkeeping tracks how much is owed on one account, and when it will be resolved. When it is resolved the ‘book’ is closed.
- Credit reporting tracks payment behavior, and shows multiple credit accounts. Payments may be reported for up to 7 years. Your credit reputation is built by your payment behavior
Company subscribers to credit report services (banks, mortgage companies, credit card companies, rental/leasing, etc.) show the payment history in their remarks. When the subscriber’s underwriting department reads a credit report, it is looking for the pattern of payments, overall credit in use, and negative remarks regarding such payments.
Credit reporting companies do not provide subscriber credit reports directly to consumers, they are required to provide a free credit report once per year on request. This free credit report often has missing or incorrect information, substantially differing with the data in subscriber credit reports from the same company.
As long as the payments are made as promised, on time and in full, the amount owed is not of concern. In each instance, the amount of the negative remark is much less important than the nature of the remark.
- A $10 late payment is as severe as a $1,000 late payment
- A collection account for $50 is as harmful as a $5,000 collection account.
The way bills have been paid is usually a reliable indicator of how bills will be paid. The broken promise of payment is what raises the red flag in a credit report. The appearance of reputation harmful information or remarks like late payments and collections accounts hurts. A public record item, such as judgments, liens, and bankruptcy is even more damaging.
Paying off your bills does not change your credit reputation. If there is/was a pattern of late payments, that will still be reported.
Closing an account does not remove the account from your credit report, where it may continue to appear for up to 7 years.
Credit Reputation Damage & Your Compensation
If someone else has damaged your client’s credit reputation, whether through identity theft, abuse of joint accounts, violation of an agreement, etc., that may be a basis for compensation. Economic damage, as evidenced by increased out-of-pocket costs, loss of credit accounts, and the inability to replace those accounts, have been successfully measured and paid for.
If you suspect that your client is a victim of economic damage, address that issue. Just as you are the best advisor regarding going to court, a credit damage expert can assess the extent of compensable damage, and provide a damage demand amount.
If you have a client that is the victim of spouse-inflicted economic damage and needs some expert guidance regarding credit issues, please call me. I would be happy to help.