How is the date of last activity on your credit report used?
Your credit report contains information about all of the loans and credit card accounts for which you are liable. For each account, the report indicates the amount you owe, your available credit and your payment history. Part of your payment history is data known as the date of last activity. The date of last activity indicates when you last made a payment or charged something to that account.
Why is the date of last activity important? The date you make your payment or make a charge may seem inconsequential to your credit report - and it often is. If your account is in good standing and everything is current, the date of last activity probably has little effect on your overall score or rating. However, if you are behind on a payment or have defaulted on an outstanding account, the date of last activity becomes crucial.
Once an account is reported as late, it may adversely affect your credit score and it will appear on your credit rating. The date of last activity becomes the benchmark for how late the payment actually is. If a payment that is only a few days late is reported to the credit bureaus, it generally has only a small affect if it is an isolated event. A new payment supplants the date of last activity and the event becomes a small blip on the horizon of the credit report. However, as a bad debt ages, it has an increasing impact on the credit score. While even reliable customers occasionally pay something a few days late, as an outstanding debt ages to be months overdue it is a sign of someone who is either not managing money well or is not taking responsibility for his accounts. So, as the amount of time from the last activity grows, the credit score decreases.
After some time, the credit score stops reacting to a particular event. Under the Fair Credit Reporting Act (FCRA), when a negative event such as a non-payment on a credit report reaches seven years of age it is removed from the report. So, if a non-payment has been on a credit report for several years, it may actually be better to ignore it than to pay it and have it appear with a new date of last activity. Sometimes, creditors will refresh an account to give it a new date of last activity. Often this occurs when a loan is sold to a collection agency. This stretches the amount of time before the charge is removed from the credit report and can cause a new drop to your credit score. In fact, it may affect your credit score by up to 50 points, which is significant. If you are applying for a new loan or credit account, a score difference of 50 points can change your interest rate or eligibility. If you believe the date of last activity is incorrect on your credit report, you may dispute it with the credit bureaus. The Federal Trade Commission oversees the credit bureaus; their website offers information on your rights in regard to credit reports and includes information on disputing errors.
