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How long can these score killers remain on your credit reports?

So you’ve made some credit mistakes.  With over 35% of the population scoring below 650 on the FICO scoring scale, you’re certainly not alone.  But now that you’ve made the mistake, how long are you going to have to live with it?

Each and every negative item has a reportable statute of limitations.  That means the credit bureaus can legally report it for some period of time before it must be removed.  The general consensus is seven years for the credit reporting of negative items.  And, while that’s correct for many negative credit items, it’s not always right and certainly not always that simple.

Bankruptcy

This one has possibly the most confusing statute of limitations so let’s get it out of the way first.  Chapter 7 bankruptcies (liquidation of all statutorily dischargeable debts) can remain on your credit files for ten years from the date filed.  Chapter 13 bankruptcies (Wage earner programs where you’re still making payments to the trustee) can remain on file for seven years FROM THE DISCHARGE DATE.  This is important because most people believe 13s have to be removed seven years from the filing date, which is incorrect.  It normally takes three to five years for a Chapter 13 to discharge.  That’s when the 7 years begins.  The cap on all bankruptcies is ten years so most 13s remain on file for a full ten years, just like Chapter 7s.

Tax Liens

This one has the longest statute of limitations and must be broken down into three categories; released, unpaid, withdrawn.

Released Tax Liens – Released liens can remain on file for seven years from the date released.  This included liens that have been settled for less than you really owe.

Unpaid Tax Liens – Sit down.  Unpaid tax liens can remain on your credit file indefinitely.  That’s the bad news.  Now the good news…

Paid and Withdrawn Tax Liens – Paid tax liens normally stay on file for seven years, but the IRS just announced that they will withdraw the lien if paid in full AND the taxpayer requests a withdrawal.  The credit bureaus do not report withdrawn tax liens so they will come off your files almost immediately if you get them withdrawn.

Defaulted Government Guaranteed Student Loans

Interestingly, the Fair Credit Reporting Act doesn’t govern the amount of time defaulted student loans can remain on your credit reports.  The amount of time is actually governed by the Higher Education Act instead.  Defaulted student loans can remain on your credit reports for 7 years from the date they are paid, 7 years from the date they were first reported or 7 years from the date the loan re-defaults.  The point you should take away from this…pay your student loans!

The Seven Year Club

The following items can remain on your credit files for seven years.

Delinquent Child Support Obligations

Judgments – Seven years from the filing date whether satisfied or not.

Collections – Seven years from date of default with the ORIGINAL creditor, not seven years from when the collection agency buys or is consigned the debt.

Charge Offs – Seven years from the date of the original terminal delinquency.

Settlements – Seven years from the date of the original terminal delinquency

Repossessions and Foreclosures – Seven years from the date of the original terminal delinquency.

Late Payments – Seven years from the date of occurrence.

You’ll notice that I use the term “terminal delinquency” several times above.  The seven year period actually begins 180 days AFTER the original delinquency that leads to a collection, charge off or similarly negative action.  So, technically these items remain on your credit file for 7.5 years from the date of the last delinquency that precedes the terminal delinquency.

The Forever Club

If your credit report is being accessed for a loan of $150,000 or more then none of the seven and ten-year rules are binding.  That means the credit bureaus COULD maintain this negative stuff permanently but only for credit reports where you’ve applied for a higher dollar loan.  They also have an exemption for credit reports sold for employment screening where the job is expected to pay $75,000 or more.  Thankfully the credit bureaus choose to use the seven and ten year guidelines regardless.  Whew.

You Don’t Have to Do Anything, Unless

Other than the tax lien withdrawal process described above the consumer doesn’t have to do anything in order to have negative credit information removed on or before the expiration of the applicable statute of limitations.  The process of removing negative information is autopilot and based on a passive date trigger or “purge from date.”

Now, since it’s based on a trigger date there is room for error in the cases of incorrect credit reporting.  If the bank says you defaulted in 2005 and you really defaulted in 2004 then the credit bureaus are going to use the 2005 date.  Then it’s up to you to argue with (or sue) the lender and the credit bureaus to get the dates corrected.

Re-aging

If you’ve never heard of this term let’s hope you never do.  Re-aging is the illegal process of changing the “purge from date” so the credit reporting extends past the allowable period of time.  This is not common but when it’s done, it’s usually a collection agencies or debt buyer who is breaking the rules.  It’s a clear violation of the Fair Debt Collection Practices Act and the Fair Credit Reporting Act but the debtor has to know it has happened.

There, now it’s all clear as mud.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit.