Photo (cc) by BookMama
Don’t you just hate dealing with credit?
The concept of a credit history and score is simple enough. Your credit history is a detailed report of your credit, and your score is a three-digit number representing that history.
But when it comes to credit, the devil is in the details. Example? This week’s reader question:
I understand a collection account will [appear] on your credit report for seven years. Is it legal for them to sell the account to another company after seven years and continue to report the same debt on your credit report? — Jessica
Before we get to Jessica’s question, here’s a video I did a few months back called “Answers to Your Credit Questions.”
While that video answered some common questions, it didn’t answer Jessica’s. So let’s get to it.
The short answer to your question, Jessica, is yes and no. Yes, it’s legal for a creditor to sell your account to another company after seven years, or anytime they want. But no, it’s not legal for the new owner to act as if the debt is new so it continues to show up on your credit report after the seven-year limit is reached.
This problem is common. It happens because a collection company picks up bad debts, often for pennies on the dollar, then does what it can to collect them. Those things include writing you letters, calling you, putting the debt on your credit report without telling you (known as “parking”) and, sometimes, reporting the debt as new, which is called “re-aging.”
Surprised that creditors would engage in this type of behavior? Don’t be. They do all kinds of things, including continuing to report debts that have been legally discharged in bankruptcy.
It shouldn’t matter how many times the debt has been bought or sold. Delinquent accounts should fall off your credit history after seven years, period. That seven-year clock begins 180 days after the first missed payment on the original debt.
Two dates for debts
There are two important debt dates. The first is the one I just mentioned: the date a delinquent debt falls off your credit history, which is seven years. But another date that’s important is the date when a debt becomes no longer legally collectible.
A debt is no longer legally collectible when the statute of limitations has been reached. That date differs from state to state, but for credit card debt, it typically runs from three to six years. You can check your state here.
When a debt has surpassed the statute of limitations, if you’re sued, you can assert this defense in court. Note, however, that just because a debt is beyond the limitation, there’s nothing stopping a creditor or collection agency from trying to collect it anyway. Also note that while this is a valid defense you can use in court, if you don’t show up in court to use it, it will be deemed to have been waived.
If a debt collector can persuade you to make even the smallest payment on an old debt, you could reset the statute of limitations. So if you’re ever contacted by a collection agency, be careful what you do.
“Parking” debts and other collection tricks
Some debt collectors will buy an old debt, then quietly sneak it back onto your credit report by reporting it as newer. There it waits, like a snake in the grass, until the day you decide to buy a car or house. Your credit report is pulled, the debt shows up, and you’re bitten. What do you do?
What the debt collector hopes you do is quickly pay it off so your loan goes through.
This is why you should always get a copy of your credit report well in advance of any borrowing you intend to do.
Another common technique that might be used in conjunction with parking is re-aging, which may be what Jessica is alluding to. As I mentioned above, this is buying an old debt, then changing the date so it will appear newer and reportable to the credit reporting agencies.
These tactics aren’t legal. Here are two paragraphs from FTC.gov. Note that this is not directed to consumers, but to companies furnishing information to credit reporting agencies — in other words, creditors and collection agencies.
When you provide information to a CRA, you have obligations under the FCRA to ensure the accuracy of the information you furnish. As a rule, it’s illegal to report information that you know or believe is inaccurate.
And this one:
If you don’t comply with the FCRA, you may be sued by the FTC, Consumer Financial Protection Bureau (CFPB), state governments, or in some cases, consumers. The FCRA provides for maximum penalties of $3,500 per violation in the case of lawsuits brought by the FTC. FCRA 616, 617, 621
A creditor or collection agency that deliberately changes the date of a debt for the purposes of making it show up on your credit history or appear to be within the statute of limitations is breaking the law.