Dear Debt Adviser,
I have several collection accounts from long ago -- more than five years ago -- that are for relatively small amounts. I am wondering if I pay those debts, does that start the seven-year period over where it will remain on my credit report? Or is it seven years from when it was first reported? Most of those accounts will be dropping off of my report within two years anyway, and if it starts the process over, am I better off not paying them for this reason?
Better off not paying them? Dream on! Sure, it would be great if you could improve your credit and not have to pay the bill. I'm afraid in your case, it just ain't so. You are confusing the time limit for negative items to appear on your credit report and the statute of limitations for collecting a debt in court. Don't worry. You are far from alone in mistaking one for the other. Here's how it works.
The Fair Credit Reporting Act states that most negative items must be removed from a person's credit report seven years after the first date of uninterrupted delinquency (more than 180 days past due). Bankruptcies, federal debts and child support are among a few exceptions. Making payments on the account or paying off the account does not in any way affect the allowable time the item can legally be reported on a credit report. For example, the original account that was turned over to collections must be removed from your account seven years after it was first reported delinquent. So, if that date was March 3, 2004, the account would be removed from your credit report March 2, 2011.
That brings up another misconception I'd like to address. Many people believe once a collection account is paid, it will be removed from your credit report. That is not true. An account less than 7 years old will remain on your report even if it is paid. However, any potential lender, landlord or employer, viewing your report before the account must be removed, would much rather see a paid collection account than an unpaid one. This is the reason I recommend paying off your collection accounts.
The statute of limitations on debt varies by type of debt and by state. It has nothing to do with credit reporting. You can find the statute of limitations for your state by visiting your state's attorney general website. The clock starts from the last date of a payment activity on the account. For example, if you have not made a payment on an account for five years and the statute in your state is four years, you may use the statute of limitations to prevent the account from being collected in court.
The important thing to keep in mind is the last date of activity. Any type of payment, or in some states a written agreement to pay, is considered an activity and can restart the clock on the statute of limitations.
Another somewhat fine point of the statute of limitations is that while the debt cannot be enforced in a court of law, you'll need to show up and dispute the debt. A second point is that while creditors can't use the courts to collect, they can still do everything short of getting a court order for garnishment to collect the debt. So, they can still write, call and generally be a royal pain. The best way I know of to get an expired debt -- one past the statute of limitations date -- out of your life is to have an attorney write to the collection agency saying it is only to contact the lawyer regarding the debt and that you don't intend to pay anything. This will generally deter even the most determined collector because pursuing a debt that is past the statute of limitations will be a waste of time.
Whether an account has passed the statute of limitations for collection has no bearing on how long it is reported on your credit report. If it were me and the amounts were small, I'd pay the debts off to put an end to any future collection activity and clean up my credit report for anyone who sees it for the next two years.
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