I recently received this question from a reader regarding how to deal with old unpaid collections.
“John, I am applying for a mortgage loan and the loan officer is telling me that I have to pay off two ancient collections in order to close on my loan. These collections are from when I was in college for unpaid utility bills. Stupid, I know. They’re 6 years old and if I understand the rules they have to be deleted in one more year. If I pay them won’t that update the activity on the collection and start the seven year clock over again?”
Answer: As it pertains to the credit reporting of a collection account nothing, NOTHING, can cause the collection to remain on your credit reports longer than 7 years. You can make a payment, pay it off, settle it, dispute it, whatever you like…and you won’t cause it to remain longer than 7 years.
All collections have a date associated with it called the “FCRA Compliance Date of First Delinquency” or “DFD.” That date represents the date from which the credit bureaus will purge the collection account. The “DFD” is the date the original account (not the collection) went delinquent for the first time leading to the default. So, if you missed a payment in January of 2009 and then missed more payments leading to a default in June of 2009 the “DFD” is January of 2009. The bureaus can maintain collections for 7.5 years from that date or 7 years from the date of default, which is June 2009 in my example.
That date cannot be updated or it would cause the collection to potentially remain on your credit file longer than allowed by law.
There are other dates associated with collections that WOULD be updated when you make a payment. For example, the “date reported” would certainly change to the then current month/year. But none of the dates outside of the DFD are used as the purge from date.
Now, if I were you I’d still be careful because if you choose to make a payment then you WILL re-age the “time barred debt” date to current. This has absolutely nothing to do with credit reporting but it does reset the clock from which the lender or debt owner can sue you to collect. But, if you’re paying it off or settling the debt in full you don’t need to worry about that because there’s no reason to sue you on an account that now has a $0 balance.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.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. You can follow John on Twitter here.