Derogatory is Derogatory

I hear this often, “Medical collections don’t hurt my credit.” Well, this is not true! This rumor surfaced from the fact that most lenders won’t hold medical collections against you. This part is true but we are forgetting that lenders use your credit score to gather your “credit worthiness”. And those medical collections do indeed affect your credit score.

A Derogatory is a Derogatory. This is similar to the Protestant belief that a sin is a sin. It does not matter if it’s a white lie or murder, it all counts the same. As hard as it is to grasp, one derogatory is no different than another when it comes to your credit score. A $25-dollar medical collection is the same as a $25,000-dollar repossession. Your score does not discriminate against the type of account nor the dollar amount. It will code each derogatory equally.

Payment history contributes to 40% of the credit score so it is important to know that the status of each account is calculated within it. Current accounts, paid accounts, late pays, collections, charge-offs, judgments, etc.; all become part of this infinite algorithm. As we look further into payment history, we find that the age of the derogatory is what makes the biggest impact on the score. More specifically, recent history in the last 24 months.

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I really want this to sink in since much of what we will talk about in the future is based on these scoring principles. It should be clear now that the age of the derogatory is the MOST important factor when scoring payment history. Let’s follow the example below:

John and Mary have identical credit with the following exceptions: John has a $98-dollar medical collection that posted two months ago, and Mary has a $28,000-dollar repossession from 18 months ago.

Who do you think has the lowest score? If you guessed John – you are correct!

Having attempted to lay some cement down on this, I’m not surprised to see so many frustrated people stopping by my office after dishing out tons of money to other credit repair agencies. There are so many credit repair companies out there bragging about how many deletions they’ve attained but they don’t realize that if you don’t get the right ones deleted, your score still suffers. You still won’t be able to buy that home, or you’ll be forced to pay ridiculous interest rates. It does not matter if you have 20 different derogatory items on your report and get 19 of them deleted; if the last one left is the more recent, your score will continue to suffer from it.

It seems as if the only other folks to know about this fact are the collection agencies. They use these dates legally, and many times illegally, to manipulate how the derogatory is aged on the credit report. I’ll write a more detailed entry on my next blog to include differences between aging collections versus original creditor charge-offs, how to properly age accounts, and how to spot dates being abused or manipulated by collection agencies.

Just pay your bills on time and you’ll be fine.

Dennis Hubbard

Dennis Hubbard

President, CEO and Credit Guru at Credit Firm, Inc
Veteran of loan origination since 1994.Speaks fluent FICO with a redneck accent.Assisted thousands in achieving and exceeding their credit goals since 2009.Expert in state and federal laws regarding collections, credit, and loan origination.Pushes all the right buttons to make people and systems move.His principles and methods of the scoring process can only be heard here at Credit Firm Inc. - The only credit consulting company that guarantees a credit score goal.
Dennis Hubbard

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