When Does Old Debt Fall Off Your Credit Report
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If you fail to make a debt payment for 30 days or leave it unpaid, you can expect this to remain a dark spot on your credit report for seven to 10 years from the first missed payment date. The specific number of years before a debt falls off your credit report depends on the type of debt. But the longer it remains on your report, the less influence it has on your credit score until eventually it is removed. Still, as long as old debt is on your report, it can affect the interest rates you're charged on a loan.
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When does old debt fall off your credit report?
The type of debt greatly influences the time period it'll stay on your report, but it can be up to 10 years before they're in the rearview mirror, according to the Fair Credit Reporting Act. For example, your delinquency date would be January if you missed a payment in January and didn't pay it until the bill went into default.
Here's a list of items and the amount of time they'll linger on your report:
Type of debt | When it falls of your credit report |
Money owed to or guaranteed by the government | 7 years |
Late payments | 7 years |
Foreclosures | 7 years |
Short sales | 7 years |
Collection accounts | 7 years |
Chapter 13 bankruptcies | 7 years |
Judgments | 7 years, or until the state's statute of limitations expires (whichever is longer) |
Unpaid taxes | Indefinitely, or 7 years from the last payment date |
Unpaid student loans | Indefinitely, or 7 years from the last payment date |
Chapter 7 bankruptcies | 10 years |
Hard inquiries | 2 years |
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How unpaid debts affect credit scores
Unpaid debts and missed payments comprise 35% of your credit score, directly impacting your eligibility to borrow money. Creditors will analyze your payment history to see how punctual you are in repaying your loans. And if these lenders find out about your credit history, which they will, they won't advance a loan to you.
The biggest hit to your credit score comes when payments become 30 or 60 days overdue. Similarly, when your debt account is sold to a debt collection agency by the original creditor, and you end up paying the sum, the debt won't immediately fall off your report. Instead, you can expect it to be there for seven to 10 years even after you don't owe any money. The debt can be removed from your report if you negotiate the terms with the debt collector. However, the report will still show it as "debt in collection." Therefore, making your debt repayments on time is highly advisable so it doesn't negatively impact your credit score and cause trouble the next time you're looking to get a loan. Old collections and delinquent accounts greatly reduce your ability to secure credit.
How to improve your credit score
Make payments on time
You're aware that every late or nonpayment will adversely affect your credit score. Negative information such as late payments can linger on your credit report for 10 years, causing severe setbacks for future debt needs. Therefore, borrowers must prioritize every debt payment, including credit card debt, mortgages and medical bills, etc., to ensure these derogatory marks on their credit score are taken care of. Timely payments are the biggest contributor to your FICO and VantageScore credit scores. You can set up automated payments to ensure you never miss a payment. You can discuss options with your lender if you're facing financial hardship.
Keep an eye on your credit report
Periodically reviewing your credit report helps you remain updated about your debts. Several free credit report providers, such as AnnualCreditReport.com, give you access to your credit report from the three major credit bureaus: Equifax, Experian, and TransUnion. Be sure to review your credit report at least once each quarter, and if you see a debt erroneously attributed to you, take it up with the lender and the reporting agencies. Another option is the free credit monitoring offered by various banks. You can sign up for the service and receive alerts when your score changes.
Keep credit utilization low
Credit utilization is your credit limit, which is the amount you can spend through your credit card, for example. Experts advise keeping your credit utilization at 30% of the credit limit, which will benefit your credit score greatly. Maxing out your cards reflects poorly on borrowers regarding credit scores. Here are a few steps you can take to keep credit utilization low:
- The easiest way to keep your credit utilization in check is by clearing credit card payments in full each month.
- If you cannot clear out the balance in full, ensure to keep your outstanding balance at a maximum of 30% or preferably lower than the total credit limit.
- Most credit cards have a high balance alert feature, which notifies borrowers as the utilization ratio swells.
- You can also increase your credit limit to keep the credit utilization ratio low. But this only works if your balance doesn't grow pari-passu with the increased limit. People who do not use credit cards impulsively should only utilize this option.
Consider debt consolidation
If you are dealing with several debts, you should consider a debt consolidation loan from a bank or a credit union. A debt consolidation loan combines all of your debts into one, which helps greatly if you have multiple debts with different payment dates. You will only have one loan payment to worry about through debt consolidation. Also, if you successfully secure a lower interest rate with the bank, you will be able to pay the debt consolidation loan even faster.
Limit new credit requests
Limiting new credit requests is also beneficial to your credit score. Every time you apply for credit, lenders make a so-called "hard inquiry" on your credit report, which falls off after two years and also temporarily affects your credit score. Whenever you apply for a new credit card, auto loan, mortgage, or other forms of credit, a hard inquiry is conducted against your records. While a hard inquiry once in a few months wouldn't affect your chances of securing a favorable rate, too much of that can give would-be creditors pause.
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Mistakes to avoid when paying off debt
Not budgeting
I've said this before: budgeting isn't fun, but it's important, especially if you have debt payments to worry about. To remain current on payments, you should create a practical budget that includes necessary expenses like debt payments, rent, food, insurance, and education.
Creating a budget gives you a full picture of your financial situation. It also identifies expenses you can share with someone. Maybe you can share your Netflix or Spotify subscription with a friend or a family member? It's also said to treat your credit card like a debit card because when you know the money will be deducted from your account, you'll think twice before splurging on an extravagant dinner or a new phone.
Illegitimate debt relief programs
Legitimate debt relief programs, like Freedom Debt Relief, National Debt Relief, and Accredited Debt Relief, help you get out of debt. But make no mistakes: it requires effort and perseverance because debt relief magic isn't a thing. Once you sign up for a debt relief program, you can expect to become debt free in two to four years. But several fake debt relief companies charge excessive fees without delivering results.
Before choosing a company, a good rule is to look them up on Consumer Financial Protection Bureau, Better Business Bureau, or your state attorney’s office's website.
Related: The Best Debt Relief Companies
Not changing your spending patterns
Do you go to Starbucks every day? Take out often and go grocery shopping without a game plan? All of this makes your life convenient and easy, but they also leave a gaping hole in your bank account. You should look into cheaper alternatives. Instead of going for dinner a few days each week, limit yourself to Saturdays or Sundays. When going grocery shopping, make a list to ensure you'll remain on track and won't buy unnecessary items. You should also strive to cook food at home — it's cheaper and healthy.
These few examples are only meant to guide you, but to arrive at the root of the problem, you should ask yourself why you made these discretionary expenses in the first place. If you don't have a good answer, you can cut down on it and direct the money toward more productive purposes.
Winging it alone
Repaying debt is no easy feat, especially if you have thousands of dollars worth of debt. While your pride may keep you from asking for help, it's OK to seek others' input. Perhaps you don't want friends and family to know of your financial troubles, but you can explore credit counseling agencies that have certified counselors that can help come up with strategies so you can become debt free. Depending on your situation, these professionals can suggest debt management programs, credit consolidation, or debt settlement. And if budgeting isn't your strongest suit, they can help with that as well, so you remain debt free.
Repaying multiple debts
Food, utilities, and rent are just some of the must-do expenses you must worry about. But the situation gets a bit tricky if you have debts from multiple credit cards. Making minimum payments on your debts doesn't move the needle much, and this strategy ensures you'll remain in debt for years. But this is where the debt snowball and debt avalanche methods come in.
The debt snowball method stipulates that you repay the smallest debt first, while the debt avalanche method says that you should focus on the debt with the highest interest rate. In both of these strategies, you'll be making minimum payments on all the debts but paying a little bit extra toward the smallest or the most expensive debt, depending on which strategy you're following.
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The bottom line
Old debts are laborious to get rid of. They not only put unnecessary pressure on the borrower but also affect your credit score. Borrowers must be vigilant in making debt payments on time not to affect their credit score and repay the loan faster. Making timely payments, not making multiple credit requests, opting for debt consolidation, and lowering the debt utilization ratio are some strategies you can employ to improve your credit score.
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Writer
Jasir Jawaid is Joy Wallet's Assistant Editor. He has more than 13 years of experience as a journalist covering Wall Street, equities, financial policy and regulation, and cryptocurrency and blockchain.
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