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I recently received this question about old debt. Since it is a frequently asked question, I thought I'd share the answer here.
This is a very common question and the answer can be found in the Fair Credit Reporting Act (FCRA). This law was passed by Congress in 1970 and is enforced by the Federal Trade Commission (FTC). Here is a direct quote from the FCRA on exactly how long a delinquent account can remain on a consumer's credit bureau file. Section 605, 1681, (c) states:
"The seven year period shall begin, with respect to any delinquent account that is placed for collection (internally or by referral to a third party, whichever is earlier), charged to profit and loss, or subjection to any similar action, upon the expiration of the 180-day period beginning on the date of the commencement of the delinquency which immediately proceeded the collection activity, charged to profit and loss, or similar action."
This section basically states that the seven-year time frame starts 180 days after the account becomes delinquent. This is true even if you begin making payments and ultimately repay a debt. Don’t worry if positive information remains on your credit report longer than seven years; this is not damaging to your report or score. In fact, a lengthy credit history is beneficial. Besides, we can use all the good news we can get.
Of course, there are a lot of exceptions. Just when you thought you understood the rules, there are a few rule-breakers to know about.
Think twice before you pay someone to try to remove the negative information from your report. No person or company can legally remove accurate items from your report for a fee.
The credit repair industry has made a lot of money trying to convince consumers that they can beat the system. It’s a trick. They flood the creditors with dispute forms. When they are not answered within the required 30 days, the items are removed from your report. You hand the credit repair company a big check and merrily begin seeking new credit.
The problem is that when the creditor finally catches up with their paperwork, the items reappear. Federal law allows creditors who respond after the 30-day timeframe to re-enter information that they find to be correct. Unfortunately, by the time you realize what has happened, the credit repair clinic has most likely vanished along with your money.
The good news is that a 1996 law passed by Congress titled the Credit Repair Organization Act has helped to clean up the industry. The law is enforced by the FTC and by state attorneys general. Under the statute, consumers are entitled to a written contract describing the terms and conditions of the agreement including guarantees of performance. It also gives consumers three days to change their mind and cancel any agreement they sign with a credit repair organization.
If you want to try to work with a credit repair company, please check them out carefully. Always a good rule of thumb: if it sounds too good to be true, it probably is. By the way, applying for a new Social Security Number to run from past credit mistakes is something the government tends to frown on.
Sure you’ve heard of Experian, Equifax and TransUnion, but there’s a lesser-known consumer reporting agency worth knowing about.
Many banks and credit unions use the services of ChexSystems to help them determine whether or not to open new accounts. ChexSystems maintains a database on consumer's bank accounts that have been mishandled. If you have written numerous bad checks or closed an overdrawn bank account in the recent past, your name and how you mishandled your previous bank account, has probably been supplied to ChexSystems. Negative information remains in ChexSystems database for 5 years (versus 7 years for the credit bureaus).
If you wish to get a copy of your ChexSystem file showing what information is entered, please go to ChexSystems Web site. (You can see a sample report here as well.) Under the FACT Act, you are entitled to a free copy of your report every 12 months.
If you find an error on your report, you can dispute the item(s). ChexSystems is required to research any entry that you believe is inaccurate and will report back to you with their findings in approximately 30 days. If the reinvestigation does not resolve the dispute, you may be able to add a statement, in 100 words or less, to your file giving your version of the dispute. ChexSystems will include a summary of your statement in future reports.
Identify theft victims will also want to keep ChexSystems in mind. Just as with the credit bureaus, you can place a security alert you’re your ChexSystem file. You can also “opt-out” of prescreened offers by calling 1-877-OPTOUT 5. (The number to opt-out with the credit bureaus at 1-888-5 OPTOUT.)
Like the three major credit bureaus, ChexSystems is regulated by the federal Fair Credit Reporting Act (FCRA). You can read the FCRA by visiting the Federal Trade Commission’s Web site.
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