On the surface, this seems entirely improbable. Bad credit, even if you have no debt? Actually, it’s not unlikely at all. Credit reports and credit scores are a measure of your credit history, much more so than an evaluation of the current state of your finances.
There are all kinds of credit situations that can show up on your credit report – deep in your past or even without your participation – that can make this scenario possible. This is also why it’s so important to stay on top of both your credit report and your credit score. The fact that you have no debt will make it even more difficult to track what’s going on.
Here are some of the ways that bad credit can make its way to your credit report, even if you have no debt.
Derogatory Credit that isn’t Yours
Bad credit is sometimes the product of mistaken identity. It could be someone with a similar name, or even one that’s identical, so the negative credit experience has been attached to you. There can also be a mix-up with your Social Security number. An error with just one digit off someone else’s Social Security number can attach a debt or other obligation to you.
Collections and Summary Judgements
If there is any business that you have had an unsatisfactory experience with in the past, it’s entirely possible that the other party in the transaction reported a collection to the credit bureaus. This is when it’s important to understand that a vendor does not need your permission in order to report a collection.
It’s even possible that a judgment can appear on your credit report without your knowledge. There are several ways this can happen:
- In an attempt to cut off all contact with a vendor, you ignored correspondence apprising you that they would take legal action.
- Notice of the action was never received by you, due to misdirected mail or some other factor.
- You might have thought that they were bluffing, so you didn’t take their threat seriously.
- The action was brought in another state, and you chose not to attend.
If the other party files for a judgment with the court, and you didn’t appear and mount a defense, a summary judgment would have been entered in favor of vendor.
Bad Business Transactions that You didn’t Think Would be Reported
In most cases involving business transactions that goes sour, you return the product, terminate the service agreement, get your money back, and everyone goes about their lives.
But that’s not how it ends in all situations.
Face-to-face, a vendor may infer that all is well after a bad transaction. But after the fact, they report a collection against you with the credit bureaus. They may even have a collection converted to a judgment. Not aware that any of this has happened, you go about your business, none the wiser.
Unfortunately, this is a fairly common outcome in regard to home rental agreements, gym memberships, and cell phone contracts. Since such agreements are prepared by the vendor’s attorney in each case, there may be some “gotcha provisions” that kick in after the fact.
Bad Credit that You Fixed that Just Won’t Go Away
There may be some errors that you have that you have already fixed along the way that just won’t go away. One of the main reasons this happens because there are three separate credit bureaus. And while you may have fixed the error with one of them, the other two can still be showing it as unresolved.
The other possibility is a creditor that simply refuses to correct an error. In that situation, you will almost certainly need legal representation in order to fix the problem for good.
Maybe early on in your life you had legitimate credit problems. But since derogatory credit can remain on your credit report for 7 to 10 years, the information is still on your credit report. Since the derogatory information is accurate and validated, the creditors won’t delete it, and your efforts to make them do so are unlikely to succeed.
If several years have passed since the bad credit experience of youth, you may have forgotten about it. But when you have credit pulled, to apply for a job, an apartment, a car loan, a credit card, or a mortgage, it’s still sitting on your report, dragging your credit score down.
Loans You Cosigned for Others
If you cosigned loans for anyone else, and that person had a pattern of late payments or the loan ended up being charged off, it will appear on your credit report. It doesn’t matter that you’re not the person who actually caused the bad credit. Since your name and Social Security number are connected to the loan account, the negative information will appear on your credit report.
Your Lack of Debt May Reflect a Credit Report with Nothing but Bad Credit
People sometimes swear off debt after having had a run of bad credit. They reason that their bad credit will no longer apply if they refuse to play the game, by avoiding debt. That may be a noble strategy, but it’s quite likely to backfire on you.
If you have bad credit on your report, and you haven’t built up any good credit to offset it, the only thing showing on your credit report will be the bad credit. And it will stay that way for up to 10 years, until all of the bad credit drops off your credit report.
How to Fix Old, Bad Debt
Old bad debt can be even more difficult to fix than recent bad debt. That’s because you may no longer have a paper trail, or even a recollection, of exactly what happened. That means that you will also not have the ability to remove the bad credit through negotiation. Complicating this is the fact that credit accounts (particularly collections) often move from company to company, as a result of mergers and loan factoring.
If that is your situation, the best strategy is to work with a law firm that specializes in credit issues. Not only do they know credit law, but often just a letter from a law firm on their letterhead can get problems resolved in a way that you could never accomplish on your own.
Avoiding debt does not guarantee that you’ll have good credit. This is especially true if you already have a lot of bad credit on your report. You’ll need to get that cleaned up if you hope to move forward in your life.