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July 13, 2009 3:45 PM   Subscribe

Will my credit ever recover? I was trying to do better.. got a job, paid on time.. But I got rejected for a credit line increase today. Mind you, my current limit is already only $300!

About 5 years ago, when I was a freshman in college I neglected bills and wrote a some bad checks. Awful. I know. About three of these accounts totaling $5k went to collections. I paid about half for a year and then stopped because I was out of work. Today the debt hovers around $3k. I still don't pay these debts.

Despite this I was able to open a checking/savings account with a major bank and was able to get a secured visa w/ a limit of $300 though them in 2006. After a year of good payment history, they refunded my $300 and turned my secured card to an unsecured one. I thought that this was a good sign. I've been using it for little purchases and paying it off every month without a single late payment since 2006. I have an OK job now, but need to return to school soon and will probably need to get loans. Which is why I am worried about my history,

True, I should have paid down those debts ASAP but I went through some personal turmoil for some years and haven't really gotten back on my feet (completely stopped spending, got a steady job, found affordable housing, stopped relying on others for $, and established a real emergency fund) until about a year ago.

What do I do? I really can't ignore the past debts can I? One of my friends suggested just leaving it be since I'm so close to the statute of limitations on them. But that isn't true, is it? Debt doesn't just fall off your report if you hide long enough?! I imagine a lot of dishonest people (like me, I guess) would do this just to avoid bills.

Now that I can help myself a little more, what do I do? If I were to start paying them back today, what would it show on my credit report? Won't it still say that there are collections on them? My current score is a measly 520. How long does it take for my score to reflect repayments? Is it removed when I pay in full or when I start payment?

I feel DEEPLY EMBARRASSED and ASHAMED of this. As I should, but I want to fix things. Can you offer any advice?

By the way, I wasn't trying to up my limit to go on a spending spree. Just trying to up my limit so that I can pay the deposit to rent a truck and move.
posted by anonymous to Work & Money (10 answers total) 6 users marked this as a favorite
There is no time limit on how long you owe a debt. There are time limits on the things that may be done to collect it. Those vary by state. You might want to contact an admin and let us know what state you are in.

I think you're thinking of the time it takes for negative information to age off your credit report. Most negative information on your credit report becomes obsolete after 7 years and may not be reported, but if you only went into delinquency 3 years ago it will be screwing up your credit for another 4 years. It's not the date the debt was incurred.

Contact them, pay what you can afford and wait. In time your score will improve.
posted by IanMorr at 4:03 PM on July 13, 2009

Bear in mind that it might not have much to do with you: I've read several news reports about how credit card companies, in this recession, are being much more conservative in their lending than they used to be just a little while ago. This tends to especially be true with borrowers they consider to be risky.

That's not to say this is the be-all end-all answer to your question. Realistically, there probably isn't a single answer to your question. Somewhere in Delaware, a computer crunched a bunch of numbers—many of which aren't changed by anything you do—and decided it wasn't worth it to give you extra credit. I can't say for sure, but I'd guess the easiest way to change that outcome is to improve as many of the numbers as you can—by paying more debt, continuing to pay on time (so you have a longer good track record), etc.
posted by brett at 4:20 PM on July 13, 2009 [1 favorite]

Since I'm starting to feel like I didn't really address your main question about how long this stuff takes, I thought I'd add an anecdote.

Through a combination of weird circumstances and lots of luck, I got out of college with no debt whatsoever. That means I didn't have any credit, either, though. I wasn't even accepted for the in-store Target card. So I gave my credit union $2000, and had them loan it back to me to buy a nice computer with. (I'm typing this answer on that same computer, five years later.)

After about six months of on-time payments, I started getting credit card offers.

Another six months after that, after I paid off the loan in full (a year early), I did some research on AskMe, picked the card I really wanted, and was accepted with a $600 credit limit.

Ever since I got it, I've used that card for regular purchases, and I pay off my bill in full every month. After about six months, I asked for an increase and got more than I expected. Ever since then, they've periodically mailed me to let me know that they increased my limit without my even asking.

I feel like it took me two years to go from zero to where I wanted be, credit-wise. I imagine it would take even longer with negative items on your credit report—and here you are at three and not quite there yet. I think the key thing is persistence: as long as you keep making regular payments on all your debt, I think you'll get there eventually. But it does take time.
posted by brett at 4:31 PM on July 13, 2009

There are some variables that could come into play. Best case scenario: nobody *has* to report a bad debt. You make a deal with the collection agency to pay off the debt in full, part of the deal is they stop reporting on you. Probably the original creditor was reporting you as a late payment, that would age off in two years or less. Problem solved. Note that this isn't guaranteed or even likely, just the "best case scenario" that I can imagine.

Worst case scenario: you owe the $3000 to a collection agency right now. Two years from now, they take you to court and get a judgment against you. The judgment stays on your report for seven years after that: if the judgment is paid, it still shows as a paid judgment. Time when report is clear: nine years from today. Note that this could be even longer the further in the future that judgment would be entered against you. And note that as a court action, a judgment is a matter of public record--people would have various means of finding out about it without getting a credit report on you, and those other means (like going down to the courthouse, or accessing court records online) probably have no time limit on them. (And for some reason if you file bankruptcy instead, add another three years on top of this.)

Middle-of-the-road scenario: you get the debt paid down to zero one way or another over two years. The collection agency keeps reporting you as paid-in-full over the next couple of years after that. Time when report is clear: roughly four years from today.

Genuinely uncollectable bad debts that don't get taken to court can be taken by the creditor as tax writeoffs, and then reported as a "profit-and-loss" writeoff to the credit reporting agencies. This is usually for smaller debts where it would be more expensive to take the debtor to court than just to write it off. Impossible to say for sure from our vantage point, but my guess is that you would be more likely to be taken to court than just written off for $3000.

Have to mention, too, that writing a bad check is a criminal matter in many (most? all?) locations in the U.S., even though bad checks are often handled as though they were simple bad debts. It is possible for an arrest warrant to be issued. And at that point, you're not talking about the time limits in FCRA anymore, you are actually asking about the statute of limitations in your area.

That said: two quick bits of advice:

1. Pay, don't hide.
2. Don't let shame or embarassment enter into your calculations. At this point, it's all about the Benjamins, not about honor or reputation or "face". It sucks, but at this point, it's just about the math and how soon you can get it resolved. If you can pay $100, just state that as a fact, that's how it is, it's neither good nor bad, it's just the situation right now.

Shame will work against you--and you need that stiff backbone for dealing with the agencies.

Anyway, for what it's worth, there are people in hock a worse than you are right now....

(Me: have worked as a credit professional, but I am not a/your lawyer.)
posted by gimonca at 4:53 PM on July 13, 2009

Now that I can help myself a little more, what do I do?

You need to contact your creditor(s) and set up a plan for paying your debt immediately. You are correct that you cannot ignore these debts. Your creditor(s) can report this debt as delinquent so long as it is outstanding, and with each report, the wait period for your credit report to clear is reset.
posted by mr_roboto at 4:58 PM on July 13, 2009

"Your creditor(s) can report this debt as delinquent so long as it is outstanding, and with each report, the wait period for your credit report to clear is reset."

This is incorrect.

OP, go to CreditBoards.com, hands down the best resource on credit there is. The posters and content there can definitely help you get back on track.
posted by bdk3clash at 5:37 PM on July 13, 2009

Don't listen to the common advice, you might NOT have to pay off those debts. Sometimes paying is the worst thing you can do for your credit. It's all about your credit report -- a debt that's not on your report is still your debt, but it won't affect your current credit situation. A well worded letter can get a listing off your report, but a payment is like blood in the water to creditors. Suddenly all your old creditors know you have money and are willing to part with it.

I have said it before, and now I'm just echoing bdk3clash, but Creditboards is the best thing that I ever did for my credit.

And of course, mail me if you want more info.
posted by mad bomber what bombs at midnight at 5:48 PM on July 13, 2009 [1 favorite]

I am not your lawyer.

Your creditor(s) can report this debt as delinquent so long as it is outstanding, and with each report, the wait period for your credit report to clear is reset.

This is not true, in the U.S. The seven-year period begins to run from the date the negative activity - i.e., the missed payment - first occurred, also known as the "commencement of the delinquency." See the FTC opinion letter on this point.

So, OP, if you wrote a bunch of bad checks five years ago, they should be nearly off your credit report. If you haven't been sued or prosecuted for them by now, it's likely you won't be.

Now, here's the danger. If you start re-paying those debts now, in some states that will re-open the window of time for them to sue you in civil court - something you definitely don't want. If you want to pay anything at all, save up some money first and then offer to settle the entire debt, once and for all, for some mutually agreeable sum of money - and make sure to get it in writing that it's settlement in full. Do NOT enter into a payment plan, because you might not be able to complete it. Offer a single-payment, lump sum settlement or nothing at all.
posted by mikewas at 5:54 PM on July 13, 2009 [1 favorite]

A good payment record for a small amount isn't going to counter-balance your default history at this point, although it's a way to establish a new credit history once your slate is "clean". You can't count on the creditors not taking further collection action against you before the debt drops off your credit report. Some collection agencies aggressively try to collect debts as they move closer to the time where they would fall off a credit record, and they may seek a judgement summons against you when the debt is for a significant amount and that would then be a new item on your credit report. Talk to a financial counsellor before you decide on a course of action. They may suggest involving a debt mediator - make sure that you fully understand the implications of doing that if you decide to take that course.
posted by Lolie at 6:08 PM on July 13, 2009

Your creditor(s) can report this debt as delinquent so long as it is outstanding, and with each report, the wait period for your credit report to clear is reset.

If this happens to you, report it to the FTC office that covers your area, your state Attorney General's office, and most importantly, to your state Dept. of Commerce or whatever office in your state is in charge of licensing collection agencies.
posted by gimonca at 7:15 PM on July 13, 2009

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