Credit reporting statute of limitations for bad credit
Sometimes it can seem like trying to read an Aztec Calendar when attempting to understand the nuances of credit reporting statutes of limitation. The short answer is that credit reporting agencies generally keep bad credit information for seven years, yet by law they can delete the information anytime they wish, even before seven years. 1 The long answer, however, is much more complex. Although favorable information is generally retained in a credit bureau’s repository for 10 years, the FTC believes that agencies should not purge favorable information sooner than adverse information (bad credit). 2 The length of time that bad credit information is retained depends on many factors. 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.
Bad Credit 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.
Seven Year Rule Exceptions for Bad Credit Reporting
There are exceptions to the seven-year bad credit reporting rule, which most people are completely unaware of. Lenders will notify the bureaus if the consumer’s credit request meets certain criteria, and in such cases the bureaus will report negative items that are more than seven years old. 1. When a consumer attempts to get a loan for $150,000 or more, there’s no time limit.(For those wanting to own a home in the future, this is yet another reason to get those adverse items removed.) 2. When a consumer attempts to obtain a job with a salary of more than $75,000, there is no time limit. 3. When a consumer applies for a life insurance policy worth more than $150,000, there is no time limit.
Since there are exceptions to the seven-year credit reporting statute, it makes the removal of any bad credit data all that much more important!
Data retention by the bureaus of obsolete information is permitted for the purposes of providing information under the seven-year rule exemptions. Reporting agencies are not required to retain obsolete information in their databases, but they are permitted to do so.
It’s important to understand how these reporting rules affect your individual report, since your priorities for removal may change as accounts approach their drop-off date. (This is discussed further later on.)
Adverse information that has expired due to a credit reporting statute of limitations is considered obsolete. Reporting of obsolete information is prohibited under 15 U.S.C. § 1681c(a). (All 1681 references are from the FCRA.) Further, credit reporting agencies may not indicate that obsolete adverse information exists. 13 For example, a reporting agency may not report that a creditor (whose debt is now obsolete) cannot locate the debtor. 14 Nothing in the Act prevents a user from using obsolete information should it be wrongfully included in a consumer’s credit report; agencies and furnishers are held accountable for that, through the FCRA. Users bear no liability when they rely on obsolete information for their decision-making. 15
Bad Credit Reporting and Statute of Limitation Variations
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). 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.
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.
Although some states may offer consumers greater protection than that afforded by the FCRA, federal law preempts state law for the following types of subject matter: 19
- Relating to the creation and use of prescreened reports. 20
- Relating to the users of prescreened reports, limited to the duties of creditors and insurance companies that use reports for solicitations of such, where the consumer didn’t initiate the transaction and involve a firm offer. 21
- Relating to the time requirements in which an agency must respond to consumer disputes and reinvestigations, including notices.
This does not apply to states that had laws in effect prior to September 30, 1996. 22 Any laws enacted after that are preempted. 23
States Laws: Contents Not Preempted 1
Criminal records capped at seven years; prohibited where no conviction obtained or if pardoned. The seven year limit for reporting delinquencies begins exactly 180 days after delinquency. 2
Prohibits the reporting of both the names and the number of inquiries to users. Criminal records capped at seven years. 3
Reporting criminal charges that did not result in a conviction is prohibited. 4
Requires lenders to indicate to a consumer when they’re denied based on lack of credit history. 5
Criminal records capped at seven years after disposition, release, or parole. 6
Bankruptcy capped at 14 years. Criminal records capped at seven years after disposition, release, or parole. No cap on length of consumer statement. 7
Bankruptcy capped at 14 years. Criminal records capped at seven years after disposition, release, or parole. 8
Agencies forbidden to report criminal proceedings over seven years old and medical information. 9
Bankruptcy capped at 14 years. Criminal records capped at seven years after disposition, release, or parole. 10
Bankruptcy capped at 14 years. Bureaus cannot merge specialized information which is applicable only to personnel investigations. Criminal records capped at seven years; reporting prohibited if pardoned. Arrests an indictments prohibited of no conviction. 11
Five year cap on paid judgments. Information relative to an arrest or criminal charge must be pending to be reported, or result in a conviction. Seven year cap on criminal convictions from release, disposition, or parole. Prohibition of information regarding race, color, religion, or ethnic origin. Drug alcohol addiction or mental institution confinement capped at seven years. No polygraph information (for investigative reports). For employment purposes only, agencies may divulge uncoerced admissions of wrongdoing in the event of detention by a retail establishment if the consumer is notified of such reporting and that it may be disputed. 12
1. Additional rules exist concerning investigative reports. States that have such laws are Maine, Massachusetts, Maryland, and New Hampshire. Many other governing statutes exist concerning insurance-related usage. Check your state laws.
2 Cal. Civ. Code §9sect; 1785.1 to 1787.3.
3 Although this law wasn’t enacted until after September 30, 1996, it isn’t a regarding “contents9rdquo; per se, so it isn’t preempted. Colo. Rev Stat. §9sect; 12-14.3-101 to 12.14.3-109.
4 Ky. Rev. Stat. Ann. §9sect; 367.310 and 367.990(16).
5 Me. Rev. Stat. Ann. tit. 10, §9sect; 131 to 1329.
6 Md. Code Ann. Com. Law §9sect; 14-1201 to 14-1218; see also Md. Regs. Code tit. 9, §9sect; 09.03.07.01 to 09.03.07.04.
7 Mass. Gen. Laws Ann. Ch. 93, §9sect; 50-68.
8 Mont. Code Ann. §9sect; 31-3-101 to 31-3-153. See also Mont. Admin. R. 2.61.301.
9 Nev. Rev. Stat. §9sect; 598C.010 to 598C.200.
10 N.H. Rev. Stat. §9sect; 598C.010 to 598C.200.
12 N.Y. Gen. Bus. Law §9sect; 380 to 380-s.
Relating to the duties of persons who take adverse actions against consumers based on reports or information provided by third parties (not credit reporting agencies). 24