If you’ve had a financial setback, like a job loss that led to missed payments and accounts in collections, you might wonder how long it will affect your credit. Debt can remain on your credit reports for about seven years, and it typically has a negative impact on your credit scores.
It takes time to make that debt disappear. Fortunately, the debt will have less influence on your credit scores over time — and will even fall off your credit reports eventually.
When do creditors report your debt?
Your creditors, such as credit card issuers, mortgage lenders and student loan servicers, regularly send information about your accounts to the credit bureaus.
That information can either positively or negatively impact your credit. Items such as late payments, charge-offs, foreclosures and hard inquiries generally have a negative impact on your credit.
Timing is everything. Expect one of these items to impact your credit within 30 days or so after a missed payment. But that timeline varies depending on when the lender reports to the credit bureaus and how quickly the credit bureaus update your credit reports. At that point, the credit-scoring company may use the updated information to calculate a new credit score for you.
How long does debt stay on your report?
Derogatory items may stay on your credit reports for seven to 10 years or more, according to the Fair Credit Reporting Act. But here’s the good news: As they age, negative items have less of an impact on your credit scores.
Here’s how long you can expect derogatory marks to stay on your credit reports:
|Hard inquiries||2 years|
|Money owed to or guaranteed by the government||7 years|
|Late payments||7 years|
|Short sales||7 years|
|Collection accounts||7 years|
|Chapter 13 bankruptcies||7 years|
|Judgments||7 years or until the state statute of limitations expires, whichever is longer|
|Unpaid taxes||Indefinitely, or 7 years from the last date paid|
|Unpaid student loans||Indefinitely, or 7 years from the last date paid|
|Chapter 7 bankruptcies||10 years|
Do I still have to pay the debt?
It’s important to keep this in mind: Your debt isn’t simply erased once it falls off your credit reports. If you never paid off the debt and the creditor is within the statute of limitations, they may decide to try and collect the money. The creditor can call and send letters, sue you or get a court order to garnish your wages.
Even outside the statute of limitations, collection companies can still try to collect the debt. “Stale debts” represent a thriving business, as they are often sold and resold for pennies on the dollar. Even a partial payment makes a call or letter worthwhile for the collector.
The only sure way to get rid of a debt is to pay what you owe, or at least an agreed-upon part of what you owe. If you’re looking to put your debt behind you and move on with a clean slate, contact the collectors listed on your credit report. Before making the phone call, make sure you know:
- The debt is legally yours.
- How much you owe the creditor.
- What you can realistically afford to pay per month or in a lump sum.
If you negotiate a payment for less than the full amount owed, be sure to get the payment agreement in writing from the collector before you send in any payment.
What happens to your credit score when derogatory marks fall off your report?
Most negative items should automatically fall off your credit reports seven years from the date of your first missed payment, at which point your credit scores may start rising. But if you are otherwise using credit responsibly, your score may rebound to its starting point within three months to six years.
If a negative item on your credit report is older than seven years, you can dispute the information with the credit bureau. Ask to have it deleted from your credit report.
Asking debtors to report paid debts
Positive information on your credit reports can remain there indefinitely, but it will likely be removed at some point. For example, a mortgage lender may remove a mortgage that was paid as agreed 10 years after the date of last activity.
It’s up to the lender to decide whether it reports your account information to the three credit bureaus. That includes your debt that’s been paid as agreed. You can call the lender and ask it to report the information, but it might say no. However, you can add positive information to your credit reports by using your existing credit responsibly, like paying off credit card balances each month.
Other ways to improve your credit score
You can build healthy credit over time by starting with these steps:
- Make on-time payments. This is one of the most important factors that impacts your credit scores. If you think you can’t afford a payment, reach out to the lender right away. It may be willing to work out a payment plan and keep your account in good standing.
- Check your credit reports. This will help you understand and track your overall financial health. Also look for errors, such as incorrect credit card balances, trade lines that aren’t yours and accounts that are incorrectly marked as delinquent.
- Dispute and fix errors. About 20 percent of consumers have an error on at least one credit report, according to a Federal Trade Commission study. Getting an error removed may help your credit score improve.