Credit Reporting Statute of Limitations for Bad Credit

(Excerpt from BestCredit: How to Win the Credit Game, 2nd ed., Chapter 6)

Credit reporting agencies keep favorable information for 10 years, yet by law they can delete the information anytime they wish, even before seven years.¹ However, the FTC believes that agencies should not purge favorable information sooner than adverse information (bad credit).² Although favorable information is generally retained in a credit bureau’s repository for 10 years, the length of time that adverse information is retained is far more complicated. It’s the credit reporting statute of limitations that governs adverse information, and this can vary greatly depending on the type of information (e.g., a judgment has a different statute of limitations than a late payment). Understanding the statute of limitations for reporting adverse information is very useful for developing priorities for credit repair and resolving unpaid debts.

Adverse Information Retention Period

Adverse information is that which will reduce a score or otherwise damage a consumer’s creditworthiness or reputation (affecting employment, for example). All the following are considered adverse, and there are laws that restrict the retention of bad credit information by the credit bureaus.

• Bankruptcies. Chapter 7, 11, and 12 bankruptcies remain on a credit report for 10 years. Chapter 13 bankruptcies will remain for seven years from the filing date if successfully completed, or 10 years if not completed.³
• Collection accounts. Collections accounts and charge-offs (those the creditor writes off as uncollectible, aka “charged to profit and loss”) remain on file for seven years; reporting commences no later than 180 days from the beginning of the delinquency rather than on the date of any subsequent action. So if there are multiple delinquency dates (i.e., a consumer went delinquent, went current, and then went delinquent again), the date of the first delinquency is the one that will apply. The running time (reporting period) cannot be reset by subsequent payment or for any other reason, in any state, except with certain student loans, listed below.
• Judgments. Unpaid judgments remain for seven years or until the governing (i.e., state) statute of limitations has expired, whichever is the longer period.⁴ The FTC believes paid judgments cannot be reported for more than seven years from the filing date (date of entry), as payment eliminates any governing statute of limitation that might lengthen this period.⁵
• Tax liens. Paid tax liens may not be reported more than seven years after the date of payment.⁶ Unpaid ones may be reported as long as they’re filed and in effect.⁷
• Civil suits. Civil suits show up on court records, and defendants (the objects of the lawsuits) in such actions are reported to the credit reporting agencies through the use of service bureaus. They’re reported seven years from the date of entry or until the governing statute of limitations has expired, whichever is the longer period. For lawsuits, the date of entry is the date the suit is initiated (i.e., filed by the plaintiff). Incidentally, if a person files suit against another, then even if the defending party countersues, the countersuit cannot be reported on the plaintiff’s credit report (though a judgment can be, regardless of who filed suit first).
• Child support. Overdue child support payments can only remain for seven years from the date it is overdue.⁸
• Criminal records. Certain public records (such as arrests, indictments, misdemeanor complaints, and convictions of crimes) aren’t computed in a score. Nevertheless, many people wish to know when these drop off, since they can affect employment. It’s seven years from the date of disposition, release, or parole, or until the governing statute of limitations has expired, whichever is the longer period. In the case of a conviction, the entry is removed if a full pardon is granted. In the case of an arrest, indictment, or misdemeanor complaint, the entry is removed if a conviction does not result. Criminal convictions remain indefinitely.⁹
• Inquiries. Inquiries remain for two years, or one year for prescreened offers. Prescreened offer inquiries are not disclosed, other than to the consumer.¹⁰ Prescreened offer inquiries don’t affect a credit score.
• Student loans. There are two different sets of rules, depending on whether the student loan is a Federal Family Education Loan (FFEL) or a Perkins Loan. FFELs include Guaranteed Student or Stafford Loans, Supplemental Loans for Students (SLSs), and PLUS (Parent) Loans. They are obligations to a lender that are guaranteed by a guaranty agency and insured by the U.S. government. Another type is a Perkins Loan (formerly a National Direct Student Loan) and is an obligation owed to a school, but that obligation may be assigned to the U.S. government if the student defaults. FFEL loans are reported for seven years from the latest of three dates: the date the secretary of education or the guarantee agency pays a claim to the loan holder on the guarantee (this is the same date the guaranty agency of the United States takes over the loan); the date the secretary of education, guaranty agency, lender, or any other loan holder first reports the account to the reporting agency; or the date when a borrower defaults on the loan a second time in the event that he or she resumed repayment after defaulting on the loan the first time.¹¹ Perkins Loans, on the other hand, are not subject to any limit on reporting. Furnishers of Perkins Loan information are required to update the account information to the bureaus if the debtor makes six consecutive monthly payments.¹²
• All other adverse. All other bad credit entries may remain no longer than seven years. Examples would include paid tax liens and other liens whether paid or unpaid. Another example includes tradeline entries (account entries by creditors). Adverse account entries that aren’t categorized as collection or charge-off accounts will show on a report for seven years from the date of last activity (DLA). Examples include late payments and accounts marked as “included in bankruptcy,” if there was no prior charge-off or collection event. For example, the collection account FCRA provision is explicit, so a delinquent debt included in bankruptcy would still be reported for seven years plus 180 days from the date of delinquency. However, if the debt was included in bankruptcy but was never delinquent (which rarely happens but sometimes does), then the statute of limitation would begin from the date it was included in bankruptcy and remain for seven years instead of seven years plus 180 days.