Lenders may remember old charge-off forever


Speaking of Credit
Speaking of Credit columnist Barry Paperno
Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes "Speaking of Credit," a weekly reader Q&A column about credit scoring and rebuilding credit, for His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.
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Question for the expert

Dear Speaking of Credit,
I recently have restored my credit since a bad time in the late 2008-2009 years where I had several charge-offs and have been waiting for all of that to fall off my credit report. It has, and I have re-established myself and was recently approved for a couple American Express cards with large limits. However, I was denied by Chase. When I called their reconsideration line, I was told that due to the charge-off I had with them in the past, that they are not able to grant me any credit.

My question is, while I'm not shocked that a bank like Chase is going to keep that over me always, technically isn't that illegal? I thought that they aren't allowed to refer to that once I have went thru the 7.5 year period of it coming off my credit report. Thanks for any help on the matter. — Mack

Answer for the expert

Dear Mack,
You should feel proud that you have been able to restore your credit standing following some tough times a number of years back. Yet it looks like you have recently been presented with a reminder of how the past you thought was gone can still rear its head.

By now, it's common knowledge that negative but accurate information must eventually be purged from credit reports. That may have led you to believe that once your Chase charge-off had been removed from your credit report, it would no longer hurt your ability to obtain new credit. But you found out otherwise.

Answering your question, Chase’s denial of credit to you for the reason stated is legal and is based on the same kind of common sense that any of us might employ if we were in a lender’s shoes. It’s the kind of sense that says one should think twice before extending new credit to someone who defaulted on a debt in the past.

This is what Chase has done by denying you credit based on an old charge-off you had with them. And while the Fair Credit Reporting Act establishes the length of time information can appear on a credit report, neither it nor any other law prevents a lender from denying a credit application because the applicant defaulted on a past debt. It's not on your credit report anymore, but it is in their internal files.

You haven’t told us whether any of those debts had eventually been paid after charging-off. If any have not, be aware that for any charged-off debts that still remain unpaid after their removal from a credit report, some additional impacts could result. Including what you’ve experienced, there are at least three examples of how some aftershocks following an old unpaid debt can continue to be felt many years later and after all evidence of the debt has been removed from the credit report:

  1. Denial of new credit
  2. Filing suit to collect
  3. Continuing to collect

1. Denial of new credit
Your situation is one example in which a current credit application is denied due to derogatory information that is no longer being reported by the credit bureaus. Some lenders may also refuse to extend credit to consumers who filed for bankruptcy so long ago that all references to the bankruptcy have been removed from the credit files. Public records, such as judgments, tax liens and bankruptcies, remain accessible to lenders and the general public after the credit bureaus have stopped reporting them.

2. Filing suit to collect
The length of time during which a consumer can be sued to collect a debt is set by the statute of limitations that applies to the state where the consumer resides. These rules tend to vary among states, with most statutes of limitations for debt collection ranging from three to six years from the date the debt first went past due, though for a few states the term can be up to 10 years. Consumers living in these states and having unpaid defaulted debts up to 10 years old, whether on or off their credit reports, can continue to face the possibility of a lawsuit.

3. Continuing to collect
Despite a debt having fallen off a credit report and the statute of limitations having expired, a collector can continue to contact a debtor for payment, providing the consumer’s rights under the Fair Debt Collection Practices Act are respected. Fortunately for consumers, and thanks to the FDCPA, any debtor aware of his/her right to stop all further communications from a collector can simply provide the collector with a written request that all future contact be ended. Without such formal notice, a creditor can contact a consumer for payment on an old debt indefinitely.

In spite of the negatives just described for holders of old, and particularly unpaid old debt, there is a plus side to all of this. Many card companies and other lenders understand how someone like you who has experienced problems in their past can still present low future credit risk. Seek out those lenders willing to let some credit bygones be bygones. They’re out there.

See related: How long negative information stays on a credit report, Minimizing score damage after a charge-off

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Published: March 24, 2016

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Updated: 10-27-2016

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