Should I Pay Off an Old Debt?
The following is presented for informational purposes only and is not intended as legal advice or credit repair.
We hear this one a lot: "I have an old debt that's been on my credit report for almost seven years. Should I pay it or let it fall off my report? Will it stay on my credit report longer if I pay it?"
It's a great question, because there are two totally unrelated issues at stake when it comes to an old debt like this: the impact on your credit and your legal responsibility to the debt in question.
Nothing will change how long an item stays on your credit report
There's a fairly common misconception that you can inadvertently "reset the clock" on delinquent items on your credit report. Just when you thought it was going to disappear from your credit report, you make a critical mistake and now your credit report (and credit score) gets dinged for another seven years. Fortunately, that's not possible.
The Fair Credit Reporting Act was amended in 1996 specifically to prevent unscrupulous collectors from taking actions that kept delinquent items alive on your credit report for years and years and years.
Now it’s pretty cut and dry. The reporting period runs for seven years and 180 days from the date of the last delinquency or missed payment. It doesn’t matter when the account was charged off, when it was sold or if you ever paid a single penny towards the debt. That means that if you missed a payment due date over seven and half years ago, and never made any payments from that point, the account in question is very likely to have fallen off of your credit report by now.
(As an aside, it’s important to remember that even if you pay off an account all delinquencies still stay on your credit report until the reporting period is over. The difference is that the account is listed as paid, rather than unpaid, which is definitely better for you.)
The statute of limitations can reset with certain actions
The idea of “restarting the clock” comes from the statute of limitations for collecting on a debt and has nothing to do with how the debt is reported by the credit bureaus. Broadly speaking, once the statute has expired, your legal responsibility to repay the debt goes with it.
The statute of limitations is set by each state, so the timeframe varies. It’s completely separate from your credit report. In fact, if you live in a state where the statute is greater than 7 years, a collector could sue you for a debt that's already fallen off of your report.
The statute of limitations in your state doesn't protect you from being sued, necessarily, but if you can prove that the applicable statute has expired, you should be able to get your case dismissed.
Crucially, making a payment, agreeing to a repayment plan, or, in some instances, simply confirming that the debt is yours can revive the debt and restart the clock. So it's important that you know whether or not the applicable statute has expired before making a decision.
There are rarely drawbacks to paying off an old debt
So what should you do about an old debt? The answer really depends on your unique circumstances.
Generally, if you have the funds to pay off a debt they're really aren't many drawbacks to doing so. It certainly won't hurt your credit to pay off an old debt, and while it may "revive" the debt that really doesn't matter once the debt's paid off (just make sure you keep adequate records of everything).
Either way, your old delinquency will fall off your report after seven years regardless of what you decide to do (or not do). But in the meantime, anyone looking at your credit report will see that unpaid debt. If you’re considering getting a loan or looking for a new job or even moving into a new home or apartment, it might be worth it just to be certain that you don’t miss out on something good because of a really old debt.
Questions about your own debts (old or new)? Work with a nonprofit credit counselor to find out what options are available. Help is free and available 24/7, online and over the phone.