Do You Have Collection Accounts Reporting on Your Credit Report?

There is a legal time limit on how long a debt collector can sue you to collect an outstanding debt. That limit depends on the state you live in and the type of debt, and in most states it runs somewhere between three and six years. Check with your state Attorney General’s office or a legal professional for the current rule in your state.

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There Is a Legal Time Limit for Collection Lawsuits

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When there is an unpaid credit obligation, creditors and debt collectors can only sue you for a set period. These time limits are called statutes of limitations, and they dictate the cutoff time for a creditor or debt collector to sue you for outstanding debt.

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That does not mean the item can’t be reported on your credit report. Even if you are outside the time limit, the account can still appear on your credit report and hurt your credit score. That can prevent you from being approved for a mortgage, because lenders may see an outstanding collection as a sign you are not creditworthy for a large loan.

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Four Types of Debt Covered Under the Statute of Limitations

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The time limit for each type of debt may be different.

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Oral Agreements

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An agreement that is not in writing: you borrow money from somebody and agree to pay it back at a specific time, often called a handshake agreement. Lenders do not use this type of agreement because it is hard to prove. It is most common between friends and family.

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Written Contracts

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A written contract records the details of the lending agreement: how much was borrowed, the date, the reason for the loan, the interest charged, when payments are due, and the other terms. Both the borrower and the lender sign it. Auto loans, services you agree to in writing, and medical debts are examples of written contracts.

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Promissory Notes

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Written like a contract but with less detail, and only the borrower has to sign. Mortgages and student loans are examples of promissory notes.

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Open-Ended Accounts

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An account that stays open indefinitely as long as you make your payments on time, such as a credit card or a line of credit.

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When Does the Statute of Limitations Start?

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The statute of limitations begins when you miss your first payment, and it resets each time a payment is made. If a debt collector calls about a debt that is almost past the statute of limitations and you make a payment, you restart the clock.

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Credit Reporting on Delinquent Accounts

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Most negative accounts are removed from your credit report after seven years, measured from the date of first delinquency. In many states the debt will pass the statute of limitations and no longer be collectible in court, but the negative account can still be reporting on your credit report until the seven years run out.

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Your Options With a Delinquent Account

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• Negotiate a settlement. The creditor may accept less than the balance due. The account is then marked settled for less than the full balance, which does not look as good to potential lenders.
• Pay the debt in full. This looks better to lenders.
• Wait out the reporting period. Most items come off your credit report after seven years.

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Questions About Collections?

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If you have questions about collection accounts reporting on your credit file, call us at (347) 404-5753 or book a complimentary consultation.

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