Credit reports can reveal long-forgotten debt

.Americans are notoriously poor savers and notoriously compulsive spenders. That’s a bad combination, and we’re racking up credit card debt at an amazing rate. Worse, with new bankruptcy legislation about to take effect, we’re failing to pay our bills at a record rate, too.

We’re spending money that we don’t have and when it comes time to pay, we’re not paying. There’s a price to be paid for that, and it’s a huge reduction in our credit scores. The credit score, using a complicated model developed by Fair Isaac & Company or others, is a scoring system that reduces a consumer’s debts, spending and credit to a simple, three digit number that lenders can use to decide if that consumer is worthy of receiving additional credit. If you pay your bills on time, your score goes up. If you pay your bills late, or not at all, your bills go down.

And the bills you don’t pay can, and will, stay noted on your credit report for up to seven years. After that, they fall off, but the effects upon your score will remain unless you start paying your bills on time. You cannot “wait out” such debts and expect your score to go up; the only way to do that is to start engaging in responsible financial behavior.

Under certain circumstances, however, unpaid debts may mark your report for longer than seven years. Those include:

• Student loans - Student loans aren’t forgivable under bankruptcy law. They’ll stay on your report until you pay them. 
• Credit transactions of $150,000 or more - Really big debt stays on the report; the nickel and dime stuff does not.
• Judgments - If a creditor who has been unable to collect from you manages to obtain a judgment from you in court, the seven year period starts again from the date of the judgment. If the ruling gets renewed, so does the entry on your record.

What should not appear on your record, however, is an old debt, more than seven years old, that has been freshly handed to a collection agency. The fact that someone is trying again to collect on your debt has no bearing on your record. That doesn’t mean that you don’t owe the money or that you don’t have an obligation to pay it; it simply means that the time for that information to appear on your report has passed. Should such a situation occur, you may contact one of the credit bureaus to have that information removed from your records.

And while you’re at it, contact the creditor and try to work out a repayment plan. The collectors will stop calling, the debt will be marked on your record as paid and your score should start to increase again. If you cannot work out a plan, you might consider credit counseling to assist you in creating a repayment plan.

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