Credit Reporting Statute of Limitations for Bad Credit

Credit Reporting and Statute of Limitation Variations

The statutes of limitations on credit reporting can be a very confusing for most people, but it can be broken down as follows:

1. Federal law trumps state law. The Constitution contains a supremacy clause.¹⁶ Federal law will always rule, unless a state law offers more protection to the consumer and it is not in conflict with federal law. This holds unless a federal law specifically preempts state law. (Many state credit reporting laws are preempted by federal law by the FCRA.) A compiled list of many such exceptions will be provided shortly.

2. Since state laws can vary, it’s a good idea to check your state’s laws, which may offer you additional consumer protections not found in the FCRA.

3. Public record furnishing can vary by state, particularly where judgments and liens are concerned. This is really more a function of the public record entry itself, not the credit reporting statute. For example, a judgment in Ohio is only collectible for five years and then it expires as a court record. Once it expires, it is no longer collectible, as it technically does not exist. However, the judgment holder can have it renewed every five years indefinitely. It will report for seven years from the filing date whether paid or unpaid. In addition, every time a judgment holder renews an unpaid judgment with the court, it counts as a new public record filing—which resets the seven-year clock.

4. State laws concerning public record entries will not stand if they offer more protection to the consumer than the federal law, since the FCRA decrees that the longer period of reporting will rule, § 605 (a)(2). For a compiled reference list of state laws concerning public records, check the BestCredit Web site (www.bestcredit.com/creditreporting/) or consult an attorney.

5. The seven-year statute for collection and charge-off accounts cannot be reset by payment. Only certain student loans can be reset by payment, as specified above.

Credit Reporting of Civil Actions
Another state variation to credit reporting is the way civil actions are reported. As explained earlier, state laws vary with regard to the way in which they permit judgments to be re-filed with the court. I mentioned Ohio, where there is a five-year limit on the collection of judgments, but judgments are renewable indefinitely. Oregon’s limit is 10 years, and judgments are renewable one time. However, there are also rules regarding dormancy. For instance, in Ohio a judgment is renewable indefinitely, yet if it sits dormant (isn’t reentered) for 21 years, then the creditor (the party to whom the judgment is owed) cannot re-file. This is a problem for judgment debtors who think they’ve dodged a bullet when a judgment drops off their report after the time limit expires, only to have the same judgment show up on their credit report—a brand new entry—a decade later. Individual judgment creditors usually forget about re-filing, whereas companies often do not, and judgments are subject to interest accumulation for the period they remain unpaid. Moreover, judgments can be sold to a third party under certain circumstances. An individual holding a judgment may not be so astute as to re-file, yet if he or she sells the judgment to someone in the business of purchasing debts, such a buyer would be more inclined to re-file the judgment. State laws vary on whether judgments can be sold or transferred.

Always be cognizant of these pitfalls and avoid unpaid judgments when practical. Even a Chapter 7 bankruptcy can be preferable to unpaid judgments, since the former drops off your credit reports in 10 years, and you can obtain new, desirable credit after just two!

And although a judgment may seem a very troublesome prospect, a lien is even more so. It’s essentially a judgment taken to another level, since it reflects unwillingness on the part of a judgment debtor to voluntarily comply with a court judgment. Tax liens are particularly nasty, as reflected in the credit reporting statutes listed above.

Judgment creditors can use the judgment to place a charge, security, or encumbrance on a piece of property, which is usually real property (e.g., a home). However, some states permit liens to be placed on personal property, such as jewelry or artwork. A lien on a home is an encumbrance, for example, one which requires that the holder of the lien be paid at the time the home is sold.

The ways in which judgments may be attached to property is explained in detail shortly, under “Collections and Civil Action,” but for the purposes of how they apply to credit reporting statutes, liens work much the same way as judgments: they are filed and then expire in a certain period. Unpaid ones can be renewed in accordance with the governing statute (and each time one is renewed, it shows up as a fresh, unpaid lien on a credit report). This can be tricky, since some states that permit liens on personal property will have a different expiration date for liens placed on real property. For example, a real property lien in Florida is filed with the county clerk and lasts for 10 years and is renewable for 10 more, while a personal property lien is filed with the Florida Department of State and is good for five years and renewable for five more.

Once again, credit reporting statute of limitations can get confusing. To summarize, just remember that the credit reporting statute of limitations for most adverse information is seven years, with the exception of seven things: (1) criminal convictions are indefinite; other criminal entries are seven years or until the governing statute of limitations has expired, whichever is the longer period; (2) bankruptcies are 10 years; (3) unpaid tax liens can remain indefinitely; (4) accounts placed for collection or charged for profit and loss are seven years plus 180 days; (5) suits and judgments are seven years from the date of entry or until the governing statute of limitations has expired, whichever is longer; (6) student loans can vary based on type and other factors—some may be reported indefinitely; and (7) exceptions exist for three specific types of situations: (a) when applying for a loan, (b) when seeking life insurance of $150,000 or more, or (c) when seeking employment where the salary is $75,000 or more. Also remember that state laws can vary widely concerning the time permitted between re-filing of unpaid claims. This would enable the reporting period for judgments, for example, to be reset every time the entry is renewed with the court and shows up as a new public record.