Whenever a creditor reports information about your debts and accounts to the credit bureaus, the bureaus create a trade line for the information on your credit report. Positive trade lines reflect on-time payments and responsible financial behavior while negative trade lines reflect defaulted debts and delinquent balances. Regardless of whether a trade line is positive or negative, it only impacts your credit score for the length of time it remains on your report.
Deleting Trade Lines
The Fair Credit Reporting Act (FCRA), in an effort to ensure that consumer credit scores are based on the most recent and relevant financial information, requires that the credit bureaus delete most trade lines--both positive and negative--after seven years. The exceptions to this rule are bankruptcies, which can remain for ten years, and open accounts, such as credit cards, which can remain indefinitely provided the account is current.
If a trade line on your credit report is incorrect, disputing it will result in an investigation by the credit bureaus. If the creditor that reported the information acknowledges that the data is incorrect or does not respond to the bureaus’ inquiries, the credit bureaus must delete the information from your credit report early. Both deletion methods impact your credit rating.
Positive vs. Negative
Whether your credit score will increase or decrease after the credit bureaus delete a trade line depends at least partially on whether the trade line in question was positive or negative. In general, deletion of a positive trade line hurts your credit rating while deletion of a negative trade line increases your credit score.
The Fair Isaac Corporation’s credit scoring system, FICO, places consumers into different scoring groups depending on what information is present on their credit reports. The credit score you can expect to carry depends on which group you are in.
The grouping system occasionally causes consumers’ credit scores to drop, rather than increase, after the credit bureaus remove a negative trade line. If the removal of a negative trade line bumps you into a higher scoring group, you move from the top rank of one group to the lower ranks of another – lowering your credit rating.
Scoring Over Time
Even if the credit bureaus have yet to remove a negative trade line from your credit report, your credit score will increase in time--provided you pay your debts on time. This is because the FICO scoring system considers your financial information for the past two years as the most relevant indicator of your credit risk. Thus, negative trade lines impact your credit score less after two years than they did when they were originally inserted.
The same is not true of a positive trade line reflecting a current and open account. Each time you make a payment, the trade line updates--keeping it recent and ensuring that it has the greatest positive impact on your credit score as possible.