3 Common Misconceptions About Negative Credit Reporting and Timing

Misconception #1

The statute of limitations regarding credit reporting and barring collectors from suing to collect debts are the same.

Correction: Incorrect.

The two statutes of limitation have nothing to do with each other. For example, if you defaulted on a debt in California, the collector cannot sue you after four years have elapsed.

However, the item can still be reported to the credit reporting agencies for seven full years. That means the collection will become a “time barred” debt a full three years before it can no longer be included on a consumer credit report.

Misconception #2

If I make a payment on a defaulted debt or collection, I’m restarting the 7-year credit reporting time frame.

Correction: Incorrect.

The 7-year clock begins at a very well defined point in time relative to the original debt. Credit reporting can occur for no longer than seven years from the date the original debt was charged off (or subject to a similar action).

That means you can make payment after payment after it has been charged off or sent to collections and the date from which the counter begins cannot be updated to be any more recent.

FYI: There are exceptions to this rule for defaulted student loans.

Misconception #3

If a creditor sells a defaulted debt to a debt buyer or collection agency, the buyer can report the collection to the credit bureaus for seven years from that time.

Correction: Re-Aging

Re-aging, in the credit reporting world, is when a creditor or collector changes the date from which the 7-year credit reporting period begins to make it more recent, thus causing an item to remain on a credit report longer than the seven years allowed by Federal law.

Possible Cause of Credit Limit Reductions or Account Closures

There are many reasons why the credit card issuer may have taken an adverse action against you.

1. Credit Score Related – Credit score falls below minimum score threshold. Action could be based on how far below the threshold the consumer falls.

2. Credit Data Related – A new delinquency hit the credit report; a new inquiry hit the credit reports; a new credit card hit the credit report; the consumer increased the amount of debt he or she is carrying; the consumer's credit card utilization increased on one or all cards.

3. Geography and Economy Related – Consumer lives in an area where home values have descended (no equity). Consumer lives in an area where the unemployment rate is disproportionately high.

4. Issuer Related – Issuer determines that your account cannot remain profitable under current terms