Over 9 percent of credit card holders fell behind on their payments in May 2010, this might mean the credit card company raises their interest rate, but that one late payment also taints the account for years. You can eventually remove delinquent accounts or wait out any bad items. Most of the time this improves your credit score.
Delinquent accounts lower your score more than just about any other item. A foreclosed mortgage, for instance, lowers your score by up to 160 points, according to online financial information resource Bankrate. Removing a delinquent account may not boost your score much if you have several other late accounts. If you drop all delinquent accounts, expect a significant boost.
The credit reporting bureaus list any accounts with bad information as "potentially negative," because they try not to judge the creditworthiness of anyone or anything, only report information. In some rare situations removing a negative account could lower your score. The credit bureaus weigh 10 percent of your score based on using several types of loans. If, for example, the delinquent account was your only installment loan, you might lose more points in the "credit variety" category than you might gain from removing the bad account.
Exception to Credit Reporting Limits
The Fair Credit Reporting Act allows the credit bureaus to report any item indefinitely in a few situations. When you apply for $150,000 in credit or life insurance policy, the bureaus can report a delinquent account of any age, according to the Federal Trade Commission.
You should pay off any debt you are legally liable for, because lenders may view you as a higher credit risk with any type of delinquent account on file. Collection accounts and charge-offs count towards your outstanding debt and some lenders refuse to move along an application with delinquent accounts. Avoid settling accounts, because it shows up as a debt settle and hurts your score. Also, never claim a debt after the statute of limitations passes on it and/or the credit reporting limit. The account can reappear on your report, if, say, you acknowledge you owe the balance on the phone with the lender.