Negative Items on a Person’s Credit Report Include Which of the Following?

A credit report records an individual’s borrowing history, detailing how debts have been managed. Lenders use this information to assess risk, meaning negative items can make it harder to qualify for loans or secure favorable interest rates.

Understanding what qualifies as a negative item is essential for maintaining financial health and improving creditworthiness.

Late or Missed Payments

Payment history is a key factor in determining a credit score. Even a single late payment can have a noticeable impact. Creditors typically report a payment as late once it is 30 days past due, though some may wait until 60 days. The longer a payment is overdue, the more damage it does, with 90-day and 120-day delinquencies being particularly harmful.

Late payments can also trigger penalty interest rates. Many credit card issuers impose a penalty APR of around 29.99% after a missed payment, making it more expensive to carry a balance. Late fees—typically between $25 and $40—add to the financial strain.

Certain loans have stricter consequences. Mortgage lenders may initiate foreclosure proceedings after multiple missed payments, while auto lenders can begin repossession. Federal student loan servicers generally wait 90 days before reporting a delinquency, but private lenders may report much sooner.

Charge-Offs

When a debt remains unpaid for about six months, lenders may write it off as a loss, a process known as a charge-off. This does not mean the debt is forgiven—the borrower is still legally responsible for repaying it. Lenders may continue collection efforts or sell the debt to a third-party buyer.

A charge-off remains on a credit report for up to seven years from the date of the first missed payment. This designation signals to future lenders that the borrower defaulted, making it harder to obtain new credit. Even if approval is granted, the terms are likely to include higher interest rates and stricter borrowing conditions. Some employers, particularly in finance or security-sensitive positions, may also consider charge-offs when evaluating candidates.

Collection Agency Accounts

If a creditor stops pursuing a delinquent debt, they may transfer it to a collection agency. This can happen in two ways: the creditor may sell the debt for a fraction of its value, or they may hire an agency to collect on their behalf. Either way, a new derogatory mark appears on the borrower’s credit report, separate from the original account.

Collection agencies aggressively pursue repayment, often contacting debtors through phone calls, letters, and text messages. The Fair Debt Collection Practices Act (FDCPA) regulates their behavior, prohibiting harassment, false threats, and deceptive practices. However, many consumers are unaware of their rights, leading to situations where they feel pressured into making payments without understanding the consequences. In some states, making even a small payment on an old debt can reset the statute of limitations, extending the period during which legal action can be taken.

The impact of a collection account on a credit score depends on factors like the amount owed, how recently the debt was sent to collections, and the scoring model used. Newer versions of FICO and VantageScore ignore paid collection accounts, meaning settling the debt could help improve credit standing. Some lenders offer “pay-for-delete” agreements, where the debt collector removes the account from the credit report in exchange for full payment. While not all agencies participate, this can be a useful negotiation tactic.

Repossessions

When a borrower finances a purchase with a secured loan, the lender retains the right to seize the asset if payments are not made. Repossession is most common with auto loans but can also apply to financed equipment, furniture, or other high-value items. Depending on state laws and loan terms, lenders can often reclaim property without court involvement.

Once an asset is repossessed, lenders typically sell it to recover the outstanding balance. If the sale does not cover the remaining loan amount plus repossession fees, the borrower may still owe the deficiency. For example, if a car with a $15,000 loan balance is repossessed and sold for $10,000, the borrower could owe the remaining $5,000 plus storage, towing, and legal costs. In many states, lenders can sue for this deficiency, potentially leading to wage garnishment or bank levies.

Foreclosures

When a homeowner falls behind on mortgage payments, the lender may initiate foreclosure proceedings. Unlike repossessions, which involve personal property, foreclosures apply exclusively to real estate. Some states require judicial foreclosure, where the lender must file a lawsuit, while others allow non-judicial foreclosure, which follows a streamlined process outlined in the mortgage contract.

Once foreclosure begins, the homeowner receives a notice of default, giving them a set period to catch up on missed payments or negotiate alternatives like loan modification or a short sale. If no resolution is reached, the property is auctioned, often at a discount. Any remaining balance after the sale, known as a deficiency, may still be owed unless state laws prohibit lenders from pursuing it. Foreclosures remain on credit reports for seven years, making it harder to secure future loans or even rent a home.

Judgments

When a creditor sues a borrower over an unpaid debt and wins, the court issues a judgment, legally affirming the borrower’s obligation to pay. Judgments indicate that legal action was necessary to collect a debt, making them particularly damaging to creditworthiness.

Once a judgment is entered, creditors can use various enforcement methods to collect, such as wage garnishment, bank account levies, or placing liens on property. Some states allow judgments to be renewed indefinitely, meaning they can remain enforceable for decades if not satisfied. While judgments no longer appear on credit reports under newer FICO and VantageScore models, lenders may still uncover them through public records searches. Settling or vacating a judgment can help mitigate its impact, but the legal and financial consequences often persist long after the initial court ruling.

Tax Liens

Unpaid taxes can result in a tax lien, which is the government’s legal claim against a taxpayer’s property. Unlike other debts, tax obligations take precedence over most creditors, giving the IRS or state tax authorities broad collection powers. Liens can apply to real estate, personal assets, and even business property.

While the IRS no longer reports tax liens to credit bureaus, they remain public records, meaning lenders and employers can still discover them. A lien can also escalate into a tax levy, where the government seizes assets or garnishes wages to satisfy the debt. The IRS offers payment plans and settlement options, such as an Offer in Compromise, which allows taxpayers to settle for less than the full amount owed. Resolving a lien promptly can prevent further legal action and financial strain.

Bankruptcies

Filing for bankruptcy allows individuals or businesses to discharge or restructure overwhelming debt. While it provides relief from creditors, it also has long-term financial consequences, including a significant impact on credit scores and borrowing ability. The type of bankruptcy filed determines how debts are handled and how long the record remains on a credit report.

Chapter 7 Bankruptcy
This is the most common form of bankruptcy for individuals with little to no disposable income. It involves liquidating non-exempt assets to repay creditors, with most remaining debts discharged. The process typically takes a few months, but the bankruptcy remains on credit reports for ten years from the filing date. While it eliminates unsecured debts like credit cards and medical bills, certain obligations, such as student loans and child support, are not dischargeable.

Chapter 13 Bankruptcy
Unlike Chapter 7, Chapter 13 allows individuals with regular income to restructure their debts into a court-approved repayment plan lasting three to five years. This option helps avoid foreclosure and repossession by allowing borrowers to catch up on missed payments. Once the plan is completed, remaining eligible debts are discharged. Chapter 13 remains on credit reports for seven years, making it less damaging than Chapter 7 but still a significant financial setback.