Cutting Through the Confusion: Statute of Limitations vs. The Reporting Period on Credit Items
When it comes to understanding your credit score and credit reporting, there are a lot of terms to remember. Because of this, sometimes it’s easy to get confused when it comes to knowing your rights and how to manage your credit repair efforts. Two of the most commonly confused concepts in credit repair and credit reporting are the statute of limitations on collecting debt, and the reporting period on credit terms. While these are two separate, non-related concepts, getting the two confused can potentially cause problems with your credit score.
Understanding the Statute of Limitations
Simply put, the statute of limitations for any debt is the length of time a creditor has to bring legal action against you in order to collect the debt. This date varies from state to state, and may be anywhere from three to ten years, and depending on the type of debt. In some instances, such as a domestic judgment, the statute of limitations may be even longer – up to 20 years. However, once this date has passed, if a creditor tries to sue you to collect the debt, you have the means to successfully defend against having to make payments.
An important thing to remember is that the statute of limitations runs out at a set period of time after the last missed payment or activity on the account. This means that if your account is past the statute of limitations, but you make a payment, you’ve reset the clock, and will have to wait another 3 – 10 years for the collection period to expire. In some states, just the promise to make a payment can reset the statute of limitations, whether or not you actually follow through on the payment itself. In the meanwhile, your creditor will be able to legally sue you over the debt and attempt to recover not only what you owe, but interest as well.
Calculating the Statute of Limitations:
1. Add six months to the last date of activity on the account (payment or otherwise).
2. Add the number of years for your state’s statute of limitations.
3. After this date, your creditors can no longer successfully file suit, as long as you can prove that the statute of limitations has expired.
Example:
1. You opened an account in May of 2000, and stopped making payments on June 3rd, 2001. Add six months to June 3rd for a date of December 3rd, 2001.
2. Your state’s statute of limitations is 4 years. Add 4 years to December 3rd.
3. Your creditors can no longer sue you for payment of that debt after December 3, 2005.
Understanding the Credit Reporting Period
By contrast, the credit reporting period only states how long the record will remain on your credit report, regardless of the actual time left on the statute of limitations. In most cases, after seven years, the debt will be removed from your credit report, whether or not you actually paid the debt. Here is where things can be confusing: Say the statute of limitations is 3 years in your state, and your debt is 4 years old, with no account activity in the last 4 years. This means that the statute of limitations has passed, even though the debt is still listed on your credit report.
Debt collectors may contact you and try to get you to make a payment on this debt to have it removed from your account, but even if you don’t pay anything, the debt will be removed in another three years. However, if you make a payment on that account, and renew the statute of limitations, the debt may also be relisted as a new debt – so any missed payments will once again have a negative impact on your credit score.
If you’re confused about the statute of limitations and the credit reporting period, you aren’t alone. There are several credit repair services that can help you, and that will offer sound advice of when it’s prudent to pay the bill and when it’s more prudent to just sit tight. Getting professional advice may help you to avoid unnecessary problems with your credit score.
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