Our analysis of this issue shows that if you have past due accounts it is in the consumer's best interest to resolve those accounts before making any attempt to apply for credit, or repair the damage caused by the delinquency.
The impact of past due accounts on the consumer credit rating we found to be substantial and creditors continue to attempt to collect the debt until some resolution is achieved. It appears unlikely that a past due or delinquent account can be permanently removed from the consumer credit report unless there is some resolution first.
Our research points to the reason delinquent accounts have such an impact on the credit rating is in how the consumer's account is reported by the creditor to the credit bureau as the delinquency progresses. We found that one 90 day late is frequently reported by the creditor to the credit bureau as one 30 day late, one 60 day late and one 90 day late. This results in the past due account to have an increasing derogatory effect on the calculation of the credit score. Secondly, the amount reported in the "payment due" column increases as past due monthly payments stack up. This impacts the consumer debt to income ratio by basically reporting that the amount of their monthly obligations includes not only the minimum monthly payment, but also all the past payments combined, and sometimes the entire balance is reported as due.
The next wave of derogatory credit reporting occurs when the account charges off (write-off) and the secondary collection market receives the account. Not only does the original creditor report the account as a "charge-off" along with the history of delinquency and the full balance still owing, but consumer accounts are assigned or sold to collectors who also subscribe to credit bureaus. The collector reports the account a second time to the credit bureau. Now one derogatory account is reported twice, along with the balance, the amount due (entire balance) and the fact the account is a collection account. While in the secondary collection market, some consumer accounts are transferred many times, with each collector reporting the account, compounding the impact on the credit.
From what we could determine, removing an outstanding, past due or delinquent account from the credit report is difficult and, if achieved, probably short-lived. The collectors do not view their derogatory reporting to the bureaus as an obligation to preserve the integrity of the credit bureau records: they view derogatory credit reporting as one of their most potent collecting tools. In the first days of delinquency they use the threat of derogatory reporting it to get consumers to bring accounts current. In the later days of delinquency they know that some time, for some reason, a consumer is going to want to use credit and will have to address the payment of the account.
