Credit Report Q&A: How Long Does It Take for Bad Credit History to Clear

Good credit is critical in today’s financial world, as almost every financial transaction involves checking a consumer’s credit report. Landlords, banks, insurance companies and even employers are now reviewing credit scores to qualify tenants, borrowers, and new employees. Therefore, it is important to have an understanding of any negative items that appear on a credit report, how long they will remain and what can be done to help raise your scores when you have made mistakes in the past.

How Long Does Bad Credit Remain On My Report?

The length of time that negative items remain in your bad credit history is based on the type of item it is. According to Federal law, the following is a breakdown of the length of time a negative thing will remain:

  • Late payments – 7 years
  • Chapter 13 Bankruptcy – 7 years from completion
  • Chapter 7 Bankruptcy – 10 years from completion
  • Collections – 7 years

Public records, which include court judgments and tax liens have special reporting requirements. Court judgments are removed after seven years, but tax liens can remain indefinitely.

When does the calendar start for tracking how long a negative item has been on my account?

The seven-year timeline begins the date the account became delinquent. What this should mean is that if an account became delinquent on May 15, 2010, it would be removed from your credit report on May 15, 2017. However, the seven-year calendar begins 180 days after the date of the first missed or late payment. Therefore, the item can remain on your report for seven-and-a-half years.

What is the Statute of Limitations?

The Statute of Limitations is set by the state where the consumer lives which says how long a creditor has to file a court action against a debtor. Once this period passes, a lawsuit may not be filed against the debtor to collect the debt, often making the debt uncollectible. This period can be between two and ten years, depending on the state. The date that a creditor can no longer sue can change if a payment is made on the account as it is based on the date of your last payment and each time you make a payment, the date changes. It has nothing to do with the amount of time a negative item can remain on your credit report, however.

Will the seven-year deletion period change my bad credit history if I make payments on the debt?

Credit reporting laws are entirely different from the Statute of Limitations. Making a payment will not reset the credit reporting clock, whether you pay in full or make a settlement payment. Federal law requires that the adverse items on your report be removed after seven years regardless of payments, settlements or any other agreements between the consumer and the creditor.

What if the account is sold to a collection agency?

A collection agency is bound by law to keep the original date of delinquency the same. Therefore, a collection agency that reports an incorrect date of first delinquency is in violation of Federal law and could be fined for their actions. In fact, a recent ruling charged one creditor $1.5 million in fines due to re-aging debts on credit reports. A consumer may also file a civil suit against a creditor who violates the law.

Shouldn’t a collection on my credit report that is more than seven years old be removed?

Yes, it should be eliminated from your credit report. Credit reporting agencies sometimes make mistakes, and older items remain on your report longer than they should. You can file a dispute with the credit card company, either by mail or online, asking them to remove the item. If the item is more than seven years old, the agency will remove it from your credit report.

How can I have the items removed sooner?

Although credit bureaus do not have to remove information that is correct, there are ways that you can work with the creditor to have the item removed. Some creditors will accept settlement payments in exchange for removing the item while others may require full payment. Inaccuracies in your bad credit history listings may also result in the credit reporting agency agreeing to remove the item. Filing a dispute is the first step in correcting any inaccuracies on the report.

What happens when I file a dispute?

A dispute is a formal complaint to the credit reporting agency that information in your credit report is not correct. The agency sends a form to the company that provided them the information, which the creditor must verify. If the creditor cannot verify the information, the item must be removed from the credit report. However, if it is verified by the reporting creditor, the consumer must take the next step towards removing the item.

What if the company verifies the information and I disagree?

If the credit reporting agency reports that the item was verified, it is advisable to contact the creditor directly. In many cases, the consumer and creditor can come to an agreement that is mutually beneficial to them, either through verification that the debt does not belong to the consumer or a settlement that will allow the creditor to remove the item, or at least update it to a more favorable report.

What do I do if the account was a joint account someone else was supposed to pay?

Even though the other person on the account was meant to pay the bill, if your name is on it then you are responsible for paying any balance remaining. This often happens during a divorce when one party agrees to pay a joint account and then does not. Until the account is more than seven years old or is paid off, it will remain on your credit report. You may be able to contact an attorney regarding the debt, but that may only be an option if the agreement for the other party to pay was in writing.

Does old bad credit history hurt my current credit score?

Often, consumer credit counselors are asked if it is better to simply let past credit mistakes simply fall off the credit report or if the consumer should consider paying the debts off. Any collections or charge-offs will affect your credit score. However, the more recent collections will have more of an impact than those that are three or four years old. This does not mean that older collections are ignored by lenders and companies that compute credit scores, but that scores are weighted based on more recent history, with current account standing having slightly more weight than past bad credit history.

There is no question that the best way to keep your credit in good standing is to pay your bills on time each month. However, as the old saying goes, “bad things can happen to good people,” and this can result in credit problems. Unemployment or a serious illness can lead to a loss of income or additional expenses that you were not expecting causing you to fall behind in your payments. For this reason, laws were passed that allow consumers to make a fresh start after past credit mistakes by requiring credit reporting agencies to remove negative information after seven years. Learn more about credit and credit cards at http://credithelpcards.com/.