Saturday, August 14, 2010

Credit Reporting Period vs.Statute of Limitations

Credit Reporting Period vs. Statute of Limitations 

If there is one thing that confuses people more than anything else about their collection accounts, its that they get the credit reporting period mixed up with the statute of limitations.

I've written several posts on statutes of limitations, but to make things simple, here's the difference between the two:

1. Statute of Limitations – The statute of limitations refers to how long a given creditor has to sue you. Every state has a different statute of limitations. This length of time does not in any way, shape or form impact your credit report (unless you get a judgment, but that's a whole 'nother can of worms).

2. Credit reporting period – This is the amount of time that a given entry can remain on your credit report. The credit reporting period for most items is mandated by the Fair Credit Reporting Act and are a matter of federal law. Regardless of where you live, the credit reporting period for a collection account is seven years.

Paying Debt Collectors Doesn't Reset the Credit Reporting Period. 

Every time you make a payment to a collection agency, you're resetting the statute of limitations and giving them extra time to sue you in the event you stop making payments. What fun. You could submit a payment to a collection agency every day, however, and it wouldn't change the amount of time the collection agency had to bring legal action against you. As a matter of fact, some people end up paying zombie debts and are paying on collection accounts long after they legally need to – especially when the collection agency couldn't even hurt their credit!

Collection Agencies Can't Reinsert Obsolete Accounts

No matter what a debt collector says to you on the telephone about reporting your debt to the credit bureaus, if that debt is older than 7 years and 180 days, its illegal to so much as touch your credit files.

The credit reporting period for a bad debt starts 180 days after you make the last payment on the account. This is the same date used to determine the statute of limitations on bad debts. The major different between the two is that, while you have the power to turn back the clock on the statute of limitations, nobody can do a damn thing about the credit reporting period. It's set in stone.

This may as well be quoting the credit reporting period...
...because you can't change it.

That's not to say that debt collectors don't try. They do. Collection agencies are notorious for changing the age of debts just so they'll hang around on a debtor's credit report a little bit longer and maybe net an extra payment for the company. Of course, by the time a collection account is obsolete and a collection agency feels the need to reage it, the statute of limitations has usually passed. Thus, the incentive for reaging is usually filing a lawsuit (or threatening to file one, since technically a collection agency can't legally make threats its unable to carry out). At that point, your debt likely sits with a junk debt buyer rather than a real collection agency and the junk debt buyer would love nothing more than a default judgment.

So that's the skinny, more or less. Don't let the debt collectors fool you. once the credit reporting period expires on your debt, its game over for the collection account within your file.


  1. Lee,
    I live in North Carolina and I'm trying to see if I understand. If I get a call from a collection agency for an account that was opened in 2000, 11 years ago, telling me I made the last payment in 2003, and they now have the account, and since I haven't responded to their phone calls, which now that I think of it, I don't remember receiving, they are going to file suit against me, unless I could pay half of the overall debt of #3,421.00, most of it interest. I informed them that I didn't have that kind of money, I only work part-time and I'm in graduate school, so all I could offer was $20, which of course, wasn't something they were happy with, but they took a check by phone, and said that I would be set up on payments for 3 months, they would follow up with me, and see if my "circumstances" had changed, and whether or not I could pay more than that.

    Of course, it all sounded very scary to me, and I make enough to take care of general living expenses, and didn't need anyone trying to garnish wages or accounts, but I really don't remember opening this account, but it was during the year that my daughter was born :). But, you'd think I'd remember paying on it for 3 years. So, now that I'm reading your blog, I'm a little confused. Since this account was opened in 2000, closed in 2003, could they have really sued me for the debt or has the statue of limitations run out, or am I just confusing things more?

  2. That depends on your state. Most states have a statute of limitations of less than seven years. The date you opened the account is irrelevant. What's relevant is the date of your most recent payment to either the collection agency or original creditor.

    Odds are they could not have sued you for the debt and were bluffing to get you to make a payment. Once you make a payment, however, they do have the ability to sue you – at least, until the statute of limitations runs out again.

  3. How to reverse boycott debt collectors.

    When a debt collector/debt collection/debt buyer company can repeatedly call with the intent of getting money their customers can repeatedly answer or call back with the intent of not giving them any. They need people to pay with as little talk as possible. They don't want to talk with people who know they are never going to pay. Be all talk and no pay. Answer when convenient. Call back. Give no information. Verify nothing. Ask as many questions as you can. Answer none.

    Don't ignore/block/report them. It doesn't work. These folks want you to ignore them for as long as you can stand to or until you give them something valuable like money or information. Ignoring them is being their good customer. Sending a cease and desist is giving information. It lets them know you are still alive and remain their good customer. Preparing to initiate unlikely individual legal battles is being their good customer.

    Be their bad customer. Make them talk to you fruitlessly for as long as they can stand to or until they stop selecting you as their customer. These companies cannot spend seconds much less minutes on the phone with every person who will never send them a dime. But they don't know who that is. You do. That knowledge is power. Every second you can keep their staff on the phone will render their business less profitable giving them a reason to never call you again.

    Calling will not reset your SOL. Making a partial payment will.

    One person who does this likes to ask general questions they should but usually won't answer, "May I have the name and address of your agent for service of process?" Calmly and slowly ask them to spell every word in the address. Read it back for verification. Control the pace. If they are rushing then politely ask them to slowly repeat. "Are you a corporation and if so in which state are you incorporated?" Repeat your questions when you don't get direct answers. When they won't answer a question ask, "Would you like to comply with the business and professions codes of your state?" That is usually the point when they hang up on me but if they say they want to comply then begin your questions again.

    Repeat while you have the spare time. These folks have many victims and few operators. If everyone calls back but pays nothing the mass auto-dialer business model becomes unprofitable. Don't aid and comfort the enemy by ignoring them. Call! Have a nice long slow friendly chat! Make them hang up first.

    Press 2 for Spanish.

    There are certainly enough victims to take down debt collectors so ignoring/blocking seems downright Orwellian. Really? We're just going to passively submit and go with a block list or however we manage ignoring an endless stream of unwanted phone calls day after day? No! Unite or remain conquered. Answer/return every call - become well practiced at keeping these folks on the phone - or count yourself not amongst the free.

  4. If you are unable to make any payments to the IRS, you can even be placed into a Currently Not Collectible status. They may put a lien on you, while in this status. However, it wouldn't even come close to the damage stopping payments on a bank loan would cause.

  5. Hi Lee,

    So this whole debt thing can be so overwhelming and confusing. I have an old debt from 2002 and I recently found out that Midland has picked up my old debt. Now my credit score has dropped. I'm confused since it's been over 7 years and it shows up as "was derogatory" on my credit. How can another company pick up an old debt that is over 10 yrs old? I'm assuming there is a loop hole for statute of limitations? I don't know if it matters but 1. the debt is less then 1000 dollars and it was in CA and I now live in MA. I want to purchase a home within the year so I really want to get this resolved.

  6. I have an out of statute debt from when I was young, dumb and broke but want to pay and unlike alot of people I don't deny I owe it. I am a man of my word and I told the collection agency that and negotiated a 50% settlement. No problem. However, this debt has never been on my credit and is well out of the range to be put on my credit. If I settle this debt is it possible this debt collector can put it on my credit as a zero balance? I don't know why they would do it but this particular person didn't seem very smart or to know how there system works so it worries me? Thanks for any knowledgeable replies.

  7. You sir are an idiot.

  8. What to do if a collection payment was made through a bankruptcy? 8 years later they place it on your credit report as a new charge off account once the bankruptcy was over. Is this legal?

    1. The bankruptcy itself can remain on your credit report for 7-10 years, depending on whether you filed Chapter 13 or Chapter 7. The accounts that were included in the bankruptcy, however, are supposed to be deleted based on the standard 7 year and 180-day rule. So no, a collection account should not be on your credit report 8 years after you defaulted on the debt regardless of whether or not the debt was included in your bankruptcy proceedings.