Bad debts that appear within a consumer’s credit file will damage his or her credit score until the reporting period expires at which point the negative information must be removed.
What Causes Negative Information to Appear on a Credit Report?
The purpose of a credit report is to maintain a record of an individual’s responsibility with debt. This allows future lenders to determine if the individual is a good lending risk. When a consumer does not pay his or her debts on time, that information is added to the consumer’s credit file.
A negative notation does not appear on a credit report immediately. Payment must be 30 days late before the information is added. This is because the credit bureaus do not register payments that are late by less than 30 days.
Reporting Periods For Negative Credit Report Entries
The Fair Credit Reporting Act sets the legal guidelines for how long a given piece of negative information can be reported on a credit report. The majority of bad debt can only remain for seven years from the day the debt first went 180 days delinquent. Debts with a seven year reporting period include:
- Credit card debt
- Medical debt
- Paid judgments
- Paid tax liens
- Chapter 13 bankruptcy filings
- Foreclosures
- Car repossessions
Some debts, however, are not subject to the standard reporting period. These debts can be reported for much longer. Some examples include:
- Chapter 7 bankruptcy filings (10 years)
- Unpaid judgments (up to 20 years in some states)
- Unpaid tax liens (indefinitely)
Old Debts Must Be Removed From a Credit Report When the Reporting Period Expires
Due to the large volume of information maintained by the credit bureaus, expired debts may not be removed in a timely manner. It is up to each individual to regularly monitor his or her credit file and request in writing that the credit bureaus remove debts when the reporting period expires.
Once the reporting period expires on a debt, any credit report entries related to the debt must also be removed. For example, a credit card charge off may result in the debt being sold to a collection agency. The collection agency may place an entry on a consumer’s credit report in addition to the negative entry for the charge off. Once the reporting period for the charge off expires, however, the collection account must also be removed- regardless of how long it has appeared on the credit file.
Misconceptions About the Federal Reporting Period for Bad Debt
- The reporting period has no connection whatsoever to a state’s statute of limitations for debt collection efforts. A statute of limitations dictates the amount of time a creditor may file a lawsuit to recover a debt- not how long the debt may remain on a consumer’s credit report.
- Although a debt settlement will reset the statute of limitations for debt collection on that particular debt, it has no effect on the original debt’s reporting period.
- A bankruptcy dismissal does not effect the reporting period for the bankruptcy. A bankruptcy appears on a consumer’s credit report as soon as he or she files and will continue to report for 7-10 years regardless of whether or not the consumer opts to end the bankruptcy at any point after filing.
- Paying off a debt neither removes the debt from the credit file of the individual paying it nor affects the reporting period.
Candice Edwards - Candice Gillingwater is a credit specialist and consumer advocate currently living in Georgia. Her goal is to educate the public about ...
