If you’ve experienced a financial setback, like a job loss that resulted in missed payments and collection accounts, you may be wondering how long this will affect your credit. Debt can stay on your credit reports for about seven years, and it usually negatively impacts your credit scores.
It takes time to get rid of this debt. Fortunately, debt will have less of an influence on your credit scores over time – and eventually even disappear from your credit reports altogether.
How Long Does Debt Stay On Your Credit Report?
The length of time a collection stays on your credit report depends on the type of loan you have. Derogatory articles can 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 these items age, the negative items have less of an impact on your credit scores.
Here’s how long you can expect derogatory notes to stay on your credit reports:
|Difficult investigations||2 years|
|Money owed 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 expiration of the state statute of limitations, whichever is longer|
|Unpaid taxes||Indefinitely, or 7 years from the last payment date|
|Unpaid student loans||Indefinitely, or 7 years from the last payment date|
|Chapter 7 Bankruptcies||10 years|
Do I still have to pay the debt?
If you’re wondering how long something stays on your credit report, it’s important to keep this in mind: your debt isn’t just erased once it goes off your credit reports. If you have never paid off the debt and the creditor is within the statute of limitations, they can try to collect the money. The creditor can call and send letters, sue you, or get a court order to garnish your wages.
Even outside the limitation period, collection companies can still try to collect the debt. “Past-due debt” is a thriving business, as it is often sold and resold for pennies on the dollar. Even a partial payment makes a call or letter interesting to the collector.
The only sure way to get rid of debt is to pay what you owe, or at least an agreed portion of what you owe. If you’re looking to put your debt behind you and walk away 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 reasonably afford to pay per month or in a lump sum.
If you are negotiating for a payment that is less than the total amount due, be sure to get the payment agreement in writing from the collector before sending any payment.
How long do collections stay on your credit report?
If a creditor’s information regarding an account default is valid, the collection record will exist for seven years from the date it is filed.
Here’s how it typically works: When a creditor considers an account to be neglected, the account can be turned over to an internal collection department. Sometimes, however, the account debt is sold to an external debt collection agency. This often happens when you are about six months behind on payments.
“About 180 days after the original payment due date, the creditor can sell the debt to a collection agency,” says Sean Fox, president of Freedom Debt Relief. “This step indicates that the creditor has decided to give up getting paid himself. Selling to the collection agency is one way to minimize the loss of the creditor.
At this point, you will begin to hear from a debt collector, who is now entitled to collect payment. Depending on the type of debt you have, various countermeasures exist on behalf of creditors to avoid significant financial loss.
Unsecured debt, like credit card debt and personal loans, is usually sent to a collection agency, or can even be handled in-house. If you can’t pay a secured debt, like a car loan or mortgage, foreclosure and repossession are the most common approaches to get creditors to start recouping their losses.
If a creditor’s information about a collection is inaccurate, a dispute may be filed against the claim. This usually updates the information in the collection but does not delete it. If the information collected is entirely inaccurate or false, filing a dispute may require extensive evidence and even an investigation to remove any misleading reports.
Collection of medical debts
For several years now, the major credit bureaus have treated medical debt owed directly to vendors slightly differently from other types of debt. Some credit bureaus even ignore medical collection accounts that are less than six months old. That’s because they don’t necessarily view medical debt as an indicator of credit risk, according to Fox.
“In addition, this grace period gives consumers time to resolve disputes with medical providers or insurance companies, or to develop a payment plan, before an invoice is considered overdue.” Fox said.
Even after unpaid medical debt is added to your credit report, it may not be as important to your overall credit score as other accounts in collection. However, make sure you understand what constitutes medical debt in the eyes of credit agencies.
“Medical bills only become medical ‘debt’ if the unpaid money is owed to a provider such as a doctor, hospital or laboratory,” says Fox. “If you paid for your medical bills with a credit card, it is not considered medical debt by the credit agencies; it just becomes part of the credit card debt.
Debt collection agencies
Paying off debt that has already been sent to a collection agency will help improve your credit score. However, paying at this point will not remove the collection action from your credit profile.
“Unfortunately, in most cases you will have to wait until the account does not age any more credit reports,” says debt relief lawyer Lesley Tayne of Tayne Law Group.
There are still many benefits to paying off accounts that have been transferred to collections rather than ignoring debt, Tayne says. For example, the discharge of a debt collection may prevent the initiation of legal action for debt collection. Plus, paying off the debt will prevent you from paying ongoing interest charges.
Under certain conditions, the collection agency may remove the report from your credit profile. One of these conditions is known as the letter “pay to remove”.
“A ‘pay to delete’ letter is a negotiation tool in which the collector or lender agrees to delete the account from credit reports in exchange for paying the debt – usually more than the amount owed,” says Tayne. “This strategy is best suited for small lenders because most large lenders are not open to this type of negotiation and it is not something you should reasonably expect.”
A goodwill letter to a creditor is another option that can sometimes help remove the negative element from a credit profile. This can be successful if the unpaid debt is an isolated event and you have a long history with the lender, explains Tayne.
What happens to your credit score when derogatory notes disappear from your report?
Most negative items should automatically disappear from your credit reports seven years after the date of your first missed payment, at which point your credit scores may start to rise. But if you use credit responsibly, your score can bounce back to where it started within three months to six years.
If a negative item on your credit report is more than seven years old, you can dispute the information with the credit bureau and request that it be removed from your credit report.
Can you ask creditors to report debts paid?
Positive information on your credit reports can stay there indefinitely, but it will likely be deleted at some point. For example, a mortgage lender can withdraw a mortgage that has been paid as agreed 10 years after the date of last activity.
It is up to the lender to decide whether to share your account information with the three credit bureaus. This includes your debt which has been paid as agreed. You can call the lender and ask them to report the information, but they could say no. However, you can add positive information to your credit reports by using your existing credit responsibly, such as paying off credit card balances each month.
What are some other ways to improve your credit score?
You can build healthy credit over time by starting with these steps:
- Make payments on time. It is one of the most important factors that affect your credit scores. If you think you can’t afford a payment, contact the lender immediately. They may be willing to work out a payment plan and keep your account in good standing.
- Check your credit reports. It will help you understand and track your overall financial health. Also check for errors, such as incorrect credit card balances, business lines that are not yours, and accounts that are incorrectly marked as overdue.
- Challenge and correct errors. About 20 percent of consumers have an error on at least one credit report, according to a Federal Trade Commission study. Removing an error can improve your credit score.
- Consider a debt consolidation loan. A debt consolidation loan combines all of your debts into one balance, often at a lower interest rate which can save you money. A debt consolidation calculator can help you assess whether this type of loan is right for you, as debt consolidation can temporarily hurt your credit.
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