Should I Start a Repayment Plan for Old Debt in Collections?

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Q. I am cleaning up my credit report. I’ve got some old collection accounts that I was thinking of starting a repayment plan. However, I also saw one just fall off my report because it was 7 years old. Is the 7-year rule based upon the “date closed” on here? Also, if the account shows “closed”, should I still try to repay or just let it go?

Dear reader,
To address your first question, the date used to determine which information falls off of your credit reports after seven years is the date when the first missed payment was reported. That’s the date when you stopped making payments altogether which led to the collection or charge-off status of the accounts. The “closed date” on your account is just the date when the creditor closed your account, and it doesn’t have any bearing on when the account falls off.

It’s common for old debts to be sold several times to various collection agencies over the life of the account in an effort to collect the remaining balance owed. However, the delinquency date on those debts should not change. So, these collections should fall off at the same time as the original closed accounts. If you see any discrepancies on the dates, you can contact the credit bureaus to dispute those reporting errors and ask for a correction. In addition to keeping an eye on when your debts will fall off, it’s even more important that you know the statute of limitation for recovery of your debts. The statute of limitation establishes the period when collection agencies can pursue legal action to collect your debt. This includes taking you to court and garnishing your wages if it comes to that. The statute of limitation for debt collection depends on several factors such as the type of debt you have and the state where you live. Typically, it ranges from 6-12 years.

Now, to address your second question whether to repay an account that’s about to fall off or let it go, it really depends on you and your circumstances. In terms of your credit report, paying this account before it falls off won’t make much of a difference for your credit score. The older the delinquencies, the lesser the impact they will have on your credit rating. What you can expect is a boost to your score when it falls off. If that debt is still within the statute of limitations, even if it’s no longer on your credit report, the collection agency may pursue legal action against you. Unlike the date of first delinquency that remains unchanged, the statute of limitations of your debts can be restarted when there’s any kind of activity on your account, even if it’s just talking to your collectors to update your account records, extending the period creditors can legally sue you. If the debt is outside of the statute of limitation, the creditor does not have any legal recourse to make you pay, but they can still try. At the end of the day, the decision to repay any remaining portion of your debt is your own and may be influenced by any number of variables extending beyond financial considerations.

The good news is that you are on the right track to rebuilding your credit. While you deal with your debts in collection, you can actively improve your score by managing your other accounts wisely. You should make all your payments on time and keep your balances low. In fact, you should try to use 30% or less of your available credit. Rebuilding your credit takes time, discipline, and a solid strategy. If you think you need a more personalized strategy to help you reach your goal, contact an NFCC-certified credit counselor from a nonprofit agency. You’ve already taken the first steps, keep it up!
Bruce McClary, Vice President of Communications
Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.