How long does old debt stay on credit reports?
To Her Credit
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also writes regularly for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs. See her website SallyHerigstad.com
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Dear To Her Credit,
If a debt is reported as a charge-off on one's credit report
and then later passes the statute of limitations in the state of California, can
it be removed from the credit report in its entirety? -- Lindsey
The statute of limitations and the length of time items
remain on your credit report are two completely separate issues. The length of
your statute of limitations -- the number of years before a debt is "time
barred" from collection -- is based on state law. That state may be where
you live (or lived when you opened the account), or it may be the card
issuer's state, such as Delaware (a state that changed its laws to attract banks).
Credit reporting, on the other hand, is done by the three
major credit bureaus (Equifax, Experian and TransUnion). The Fair Credit
Reporting Act (FCRA) determines the maximum amount of time an item can stay on
a credit report.
In California, the statute of limitations on credit card
debt is four years. If the state of Delaware applies, the statute of
limitations is only three years. The good news is that they can no longer
collect from you if you show the courts that the debt is time barred.
Be careful, however, as many people mistakenly think that if
a debt is past the statute of limitations, they can throw notices about them in
the recycle bin and forget it. If you receive a court summons over an old debt,
you must respond in order to prove to the courts that the debt is time barred.
If you ignore a debt or a court summons, you may find a chunk missing out of
your paycheck one day after the creditor sues you and wins when you don't show
Time limits on credit
After the statute of limitations has passed and the creditor
has written off the debt, your credit history slate is not wiped clean. Potential
creditors, and anyone else who looks at your credit report, can see the debt
and the fact that it was never paid. It takes seven years (five years for New York
state residents) from on the original delinquency date on the account before the debt drops
off your report.
Even one old, unpaid and uncollectible debt can drag down a
score, making it difficult for a person to get more credit at a decent interest
rate, rent an apartment or sometimes even get a job. Potential creditors are
understandably leery of lending money to someone who didn't pay back creditors
in the past.
What you can do now
Don't try to hire someone to get a legitimate mark taken off your
report. They can't do it -- at least not permanently. At best, they may be able to wrongly challenge accurate reports and have them temporarily removed from your report during an investigation.
You can do something about the negative consequences of the
mark, however. Write to the credit bureaus and attach a short 100-word statement to your
credit report explaining what happened. For example, you may have lost your job
or been in the hospital. If you keep a clean record for a few years after you
had problems, creditors are more likely to look past prior problems, especially
if you had a legitimate reason for them.
Consider paying the debt if you can. That's still the best
way to get rid of a debt and a debt collector. Old debts can still cause
problems and stress, even when they are past the date of being collectible. Nothing's stopping creditors from
attempting to contact you, as long as they stay within the rules. If you pay
off the debt, it will be marked as paid on your credit report.
If you don't pay off the debt, the best you
can do is to keep your credit report clean from now on and wait for the seven
years to pass. Keep a close eye on your credit from now on, and soon you can
have a credit history to be proud of.
See related: Expiration dates fuzzy on old card debt, Don't restart the clock on expired debts
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Published: April 5, 2013