How long will this impact my credit

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.

  • If you have a judgment, it will not automatically be removed from your credit bureau file after seven years. The FCRA states that suits and judgments can be reported for seven years or until the governing statute of limitation has expired, whichever is the longer period. Governing statutes of limitations can be learned by calling your state’s consumer protection office. A list these offices can be found at ConsumerAction.gov. You should also know that in some states, judgments can be renewed indefinitely. A judgment refers to a debt secured to the creditor by a judge’s order.
  • Chapter 7 bankruptcy remains on your report for ten years. -There is no time limit applicable to a report made in connection with credit involving a principal amount (or insurance with a face amount) of $150,000 or more.
  • Debts owed to the government, such as tax liens or student loan debt, may stay on your credit report indefinitely. Once paid, they must be removed seven years from the date paid.

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.

Cathy Williams is a former writer for MMI.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.