This week’s post will focus on collections and your credit report. Because so many consumers confuse the statute of limitations and the amount of time a collection account can remain on a credit report (two separate matters), I feel the subject is worthy of a discussion.
While the statute of limitation relates to the length of time a collector can file suit against you to collect the debt (a number that varies from state to state), the length of time a collection account can appear on your credit file is governed by the Fair Credit Reporting Act (FCRA). According to the (FCRA) a delinquent account with a creditor can remain on your credit reports for up to seven years from the date the account is placed for collection or considered a “charge-off” (which is typically 180 days from the date of the first delinquency.
Judgments, or other public records (like a bankruptcy), however, can remain on your credit report for up to 10 years. The judgment is its own account and its time length is not linked to the creditors’ payment records, but rather, the actual court docket. If you believe a collector filed suit against you after the statute of limitations has passed, then you go before a court and file a Motion to argue that the judgment was awarded in error. If you are successful, you should then be able to have that judgment removed from your credit file.
The subject of collection accounts on your credit report raises several questions.
• Will paying a collection account improve your score?
Surprisingly the answer is not necessarily. While it may help to pay off the debt and save your from being contacted by another collection agency, it won’t necessarily improve your score if the accounts are close to falling off your report. It will cause one of your balances to be zero, but the reporting of a collection, in and of itself, is harmful to your credit – even a paid collection.
• Will paying off my collection for less than the full balance affect my score?
While settling your collection account for less than the full balance will likely not affect your score but it should ensure that the debt is not passed on to a new collector who will also report the debt on your report.
• Do multiple collection accounts affect your score?
Mostly yes, but it really depends on how old your accounts are. The older an account the less it affects your score. So if you have a new collection account it will affect your score more dramatically than a few old collection accounts that are nearing the seven year mark.
• Will my score improve when a collection account is removed?
If you have several collection accounts on your report, both new and old, when the older accounts are removed from your report after the seven year period for reporting has passed, you will not see a giant increase in your score. The older an account is the less it impacts your score. On the contrary if you only have a few old collections accounts and they are removed, you should see some movement of your score.
Collection accounts are a reality for the majority of consumers. Knowing how to manage your credit and how the Fair Credit Reporting Act and Fair Debt Collection Practices Act can protect you will ensure your report is accurate. If you are in need of advice or assistance from a licensed attorney, contact SmithMarco P.C. for a completely free case review.