Settling delinquent debt won't remove it from your credit report

Question for the expert

Dear Credit Score Report,
In your article on statute of limitations on credit card debt, you say: "Consumer advocates now advise debtors not to acknowledge old debts --  or debts they don't recognize as their own -- to avoid inadvertently resetting the clock on the statute of limitations."

If it's after the four year statute of limitations (I'm in California), and I want to settle the debt in order to remove it from my credit report, but at the same time I don't want to "recognize" the debt to reset the clock, how do I negotiate with a creditor to pay off the debt at a smaller amount?

Is there anyone I can speak to for free advice? I'm a combat vet on a fixed income. -- J

Answer for the expert

Hey J,
You pose a complicated question, so let me make my answer as simple as possible: That delinquent debt, assuming it's actually yours, will remain on your credit report for seven years. That's true regardless of whether you decide to repay it in part, in full or just ignore it altogether.

The length of time that a creditor has to successfully sue you for nonpayment of a debt -- known as the statute of limitations -- is totally separate from the length of time a delinquency can remain on your credit report. In your case, as a resident of California, the lender has four years to win a court judgment for that unpaid debt. The lender can still try to sue you after the statute of limitations passes, but can't succeed as long as you inform the judge that the debt is too old to be collected. That doesn't mean, however, that the lender won't continue to try and collect the debt.

The credit bureaus, meanwhile, will leave that unpaid account on your credit reports for seven years from the original date of delinquency. "Negative information is allowed to stay on your credit report for up to seven years, longer if it's a bankruptcy. And that's regardless of whether you pay it off," says Rebecca Kuehn, assistant director with the Federal Trade Commission's division of privacy and identity protection. (Of course, if this delinquent account isn't yours, you should dispute its appearance on your credit reports to get it removed sooner.) Making payments won't change that. "The length of time that a debt remains on a consumer's credit report should not change if the consumer repays the debt in part or in full," says David Cherner, director of state government affairs and corporate counsel with ACA International, the debt collectors' trade group. So if you decide to pay, it should be because you want to fulfill your obligations to the lender and add positive payment information to your credit report -- not because you fear any legal ramifications or expect to delete items from your credit report.

Although you can restart the clock on the statute of limitations, you can't reset the clock with regards to data on your credit report. "The consumer's question says the account is on his report, and he doesn't [want] to make a payment and 'start the clock over,' causing the collection to remain another seven years.," says credit bureau Experian's director of public education, Rod Griffin. "Making a payment won't do that. The collection agency would have to change the original delinquency date, which they can't do under federal law," Griffin says.

As for making payments, if you want to negotiate a smaller repayment amount, you'll need to work with your lender. In a debt management program, a credit counseling agency, such as the National Foundation for Credit Counseling, can act as third-party negotiator between you and the creditor. Such counseling agencies may also be able to give you the free advice you're seeking.

Good luck!


See related: 'Hard' inquiries have limited credit score impact, Free credit reports: How to get the actual free one, How to dispute credit report errors, Decade-old credit mistakes shouldn't appear on your report, Interactive map of statutes of limitations for credit card debt collection, Credit card debt negotiation in 3 (not so) easy steps

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Updated: 01-20-2018