How Do I Know When Something Has Been On My Credit Report for Too Long?

Overcoming past credit problems can sometimes be a long, tedious process (especially if you are going it alone without professional assistance). However, thankfully there is a strict time limit regarding how long past credit mistakes are allowed to haunt your credit reports. In other words, most negative credit information is not allowed to remain on a consumer's credit report forever.

What Determines When Items Are Removed from Credit Reports?

The Fair Credit Reporting Act (FCRA) provides set-in-stone guidelines to the credit reporting agencies - Equifax, Trans Union, and Experian - which instructs them when an item must be removed from a credit report. That date is known by a couple of different names: the "FCRA compliance date" and/or the "purge date." Depending upon the type of credit item in question, the purge date will be different. However, the credit reporting agencies (CRAs) always rely on the information provided to them from data furnishers - aka your creditors - in order to determine the date when an item should be purged from your credit report. (The exception to this rule is in the case of public records where the credit reporting agencies proactively seek out this information and no "data furnisher" is involved.)

As mentioned above, the time frame for removal varies depending upon the type of credit report item in question. Due to the difference in purge date timelines, the subject of when an item should be removed from a credit report creates a lot of confusion amongst consumers, and even among many professionals as well. Check out this handy guide if you need help determining when an item should be purged from your credit reports.

2 Years

Inquiries - After a period of 2 years, inquiries are removed from your credit report by the credit reporting agencies (CRAs). The FCRA [15 USC Sec. 1681g] (a)(3)(A) requires that the CRAs maintain a record of employment inquiries for a minimum of 2 years and other inquiries for a period of 1 year. As a policy the CRAs maintain most inquiries, regardless of their purpose, for 2 years.

7 Years

Charge-Offs - These accounts must be purged from your credit report after 7 years from the date of the charge-off.  

Judgments - After 7 years from the filing date a judgment is required to be purged from your credit reports. However, creditors do have the option to try to re-file the judgment and, if the re-filing is granted, the judgment could remain on your credit report for an additional 7 years.

Repossessions and Foreclosures - The purge date for repossessions is 7 years from the date of the original terminal delinquency (when the account became 6 months past due without being brought current again) on the original loan.

Collections - Collection accounts are required to be purged from your credit reports after a period of 7 years from the date of default on the original account. Collection agencies are not legally permitted to tamper with the purge date in any way. This practice is known as "re-aging" and is prohibited under the FCRA.

Released Tax Liens - Tax liens which have been paid and released must be purged from your credit reports after a period of 7 years from the date of release.

Chapter 13 Bankruptcy - The purge date for a chapter 13 bankruptcy is 7 years from the date the bankruptcy is discharged. However, as it can take several years for a repayment plan to be completed, the maximum amount of time a chapter 13 bankruptcy is allowed to remain on a credit report is 10 years from the date of filing, even if 7 years from the date of discharge has not yet passed.

10 Years

Chapter 7 and 11 Bankruptcies - Chapter 7 and 11 bankruptcies must be purged from your credit report 10 years after the filing date.

Non-Discharged and Dismissed Bankruptcies - These 2 categories of bankruptcies are also required to be purged from your credit reports after 10 years from the filing date has passed. 

Never

Federal Student Loans - The FCRA does not govern how long negative student loan account information is allowed to remain on your credit reports. Instead, federal student loan credit reporting is governed by the Higher Education Act. Unpaid federal student loans are not required to be removed from your credit report...EVER.

Unpaid Tax Liens - There is no purge date associated with unpaid tax liens. In other words, unless you pay a tax lien it can remain on your credit reports, damaging your credit scores forever.

Immediately

Withdrawn Federal Tax Liens - If you have paid a federal tax lien or entered into an arrangement to pay a lien in full then you may be eligible to receive a withdrawal of the lien under the IRS Fresh Start Program. Currently the credit reporting agencies do not report withdrawn tax liens on consumer credit reports so if you dispute a withdrawn lien and include proof of the withdrawal the lien can be removed from your credit reports immediately.

What to Do about Re-Aging

If an account is currently showing up on any of your credit reports which is past its purge date, then you may have been the victim of re-aging. Re-aging occurs when a data furnisher (usually a collection agency) either accidentally or purposely reports an incorrect purge date to the credit reporting agencies. Re-aging can be disputed with the credit reporting agencies directly and it is very helpful if you can provide proof as well.

About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter and Instagram.

The Ideal Credit Card Balance to Optimize Credit Scores

As a reader of the GreatCredit101 Blog you already know that credit cards can be a very powerful tool - when used properly - to help drive your credit scores upwards. A credit card with a $0 or very low balance can potentially help to give your credit scores a substantial boost. However, many consumers and even professionals within the mortgage and real estate industries are often confused regarding the best possible balance a consumer can carry on their credit cards. Let's take a look at the truth.

FICO rewards consumers (with points added to their credit scores) when the consumer has a 0% utilization ratio on a credit card or, in laymen's terms, a $0 balance. However, FICO rewards consumers just a little bit more when they have a 1% utilization ratio. What does a 1% utilization ratio look like? Here are a few examples:

1. On a credit card with a $300 credit limit a balance of $3 = a 1% utilization ratio. 2. On a credit card with a $500 credit limit a balance of $5 = a 1% utilization ratio. 3. On a credit card with a $1,000 credit limit a balance of $10 = a 1% utilization ratio.

This means that if a consumer has a credit limit of only $300 and they are carrying a $10 balance then the consumer is above the 1% utilization ratio and, therefore, is not receiving the full potential score benefit from that card. In fact, the consumer is losing some of the points that he or she would receive if the same card had a $0 balance. However, on a credit card with a $1,000 credit limit then carrying a $10 balance is a good idea in order to receive the maximum points available. Don't look at a zero balance as a bad thing. It is awesome. But, a 1% balance on a credit card is one rung higher on the awesome scale.  

Another factor to consider is how difficult it is to actually have a precise 1% balance show up on a consumer's credit report vs. a $0 balance. Let me give you another example. Joe Consumer wants to boost his credit scores as much as possible before applying for an upcoming mortgage loan. Joe has a VISA with a $300 limit. Joe knows that 1% credit card utilization ($3 on his $300 VISA) can help to improve his scores. So Joe goes to his local mall on July 1st and charges $50 on his VISA. Unbeknownst to Joe, VISA reports the $50 balance on July 3rd. On July 5th Joe pays the $50 balance down to $3 which equals a 1% utilization ratio on his VISA card. However, on July 10th when Joe's loan officer pulls his credit report the balance on his VISA is being reported as $50 NOT $3. Joe's limit of $3 will not be reported to the credit bureaus by VISA until August 3rd (assuming that Joe does not use the card for any additional purchases in the meantime). Because Joe's VISA is at a $50 balance, which is a little over a 16% credit utilization ratio, Joe lost potential points that he could have gained with a $0 limit.

Therefore, my recommendation in most cases is still that a $o balance on a credit card is the best way to go to help boost credit scores. If you have time to play around with your balance for at least 60 days prior to a loan to try to reach the perfect 1% credit card utilization ratio - go for it! Never turn down extra potential points. However, if you know that you are going to be applying for a large auto loan or mortgage within the next 45 days then your best bet is to keep a $0 balance. Either way you go - $0 balance or 1% credit utilization ratio - you will be showing the credit bureaus that you are a good credit risk. While you have the right to fully utilize the entire credit limit on your credit card accounts you are choosing to exercise discipline and financial restraint. In other words, you are not maxing out your credit cards each time the shoe store comes out with its hottest new releases. Showing the credit bureaus that you have this discipline and restraint can result in a reward - extra points for your credit scores!

Have credit card debt that you need to consolidate? CLICK HERE to compare consolidation options.

About the Author:

About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter and Instagram.

Incorrect Personal Data on Credit Report

Errors occur on credit reports. This is a fact, and it's not really breaking news to anyone at this point either. In fact, the Federal Trade Commission released a study in 2013 which suggests that somewhere between 20 million and 42 million consumers have errors on their credit reports (depending upon the FTC's variable definition of an error).

Consumers have the right to accurate credit reports, a right which is afforded to them under the Fair Credit Reporting Act (FCRA). According to the FCRA, any information which is included on a consumer's credit report needs to be error-free and this includes the personal data which is listed on a consumer's credit report as well.

The Personal Data Section

Not only do credit reports contain information regarding your debts, they also contain a large amount of your personal information as well. The personal data section of a consumer's credit report contains information such as the consumer's name, her aliases (AKAs), her maiden name, her social security number, her date of birth, her address, her previous addresses, and her employer.

Personal data is often referred to as "cosmetic" credit report information. Yes, the information is listed on a consumer's credit report, but it has no influence on a consumer's credit scores. The reason why personal data is not used to calculate credit scores is because it is inconsistent (often provided by the consumer on credit applications) and is not a reliable indicator of credit risk.

How to Check for Personal Data Errors

Thanks to the Fair and Accurate Credit Transactions Act (FACTA) which amended the FCRA in 2003, consumers have the right to access a free copy of their 3 credit reports every year via www.annualcreditreport.com. The best way to ensure that your credit reports remain error free is to check your credit reports regularly. Ultimately, it is up to the consumer and no one else to verify that the information appearing upon her credit reports remains accurate.

NOTE: Consumers do not have free annual access to their credit scores thanks to FACTA. That is a myth. If you wish to pull your credit scores online it is best to compare the different credit score offers ahead of time. CLICK HERE to check out some great credit score and credit monitoring reviews.

Why Incorrect Personal Data Can Be Problematic

As mentioned above, credit report errors in the personal data section of a consumer's credit report are cosmetic. These errors will not help or harm a consumer's credit scores. However, that does not mean that incorrect personal data errors should be ignored. In fact, personal data errors could indicate the possibility of attempted (or successful) identity theft. Furthermore, mistakes in the personal data section of a consumer's credit report could also indicate the possibility of more serious credit errors made by the credit bureaus themselves or by a creditor (or creditors) reporting the data.

How to Correct Incorrect Personal Data

Thanks to the Fair Credit Reporting Act (FCRA), consumers have the right to dispute any information on their credit reports which is believed to be inaccurate. Whether the information is cosmetic or otherwise, if it is listed on a consumer's credit report then it is required to be accurate. When disputing inaccurate personal information (i.e. incorrect name spellings, incorrect dates of birth, incorrect social security numbers, etc.) it is helpful to provide supporting documentation to help prove how the information in question should be reported. As with any other type of dispute, the credit bureaus are required to complete their investigation within 30 days or less in most cases.

About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter and Instagram.

Will Paying Collections Help My Credit Scores?

Paying collection accounts is usually the first place people start when deciding to try to fix a damaged credit report. However, the idea that paying off a collection account will boost a consumer's credit scores is, unfortunately, very wrong. The FICO credit scoring model was built to help lenders predict the likelihood of a borrower going 90+ days past due on a loan within the next 2 years. If a borrower is likely to go 90+ days delinquent on an account within the next 2 years then a lender will probably consider the borrower to be a bad credit risk. When a consumer pays off an outstanding collection account, even if a zero balance is reported to the credit bureaus, that does not erase the fact that the delinquency occurred in the first place. Therefore, the FICO scoring model still sees the consumer as a bad credit risk.

It is the occurrence of the delinquency (aka the late payment) which lowers the consumer's FICO scores, not the balance on the collection account. The fact that the delinquency happened is not erased when a collection account is paid. To further illustrate this point, let me ask you a question. Would a $1,000 medical collection, a $100 medical collection, or a $0 medical collection lower your credit scores more (assuming they all were added to your credit reports at the same time)? If you guessed that the 3 collection accounts would likely have the same impact upon your credit scores then you are correct.

Additionally, paying a collection account should accidentally harm your credit scores further due to a deficiency within credit reporting systems which shows "recent activity" on a collection account when a payment is made.  Paying an older collection account, which hasn't reported any activity in several years, could make the collection account appear to be more recent and could potentially result in a drop in credit scores. The reason this occurs is because the credit bureaus will update the "date reported" field when the collection agency reports the new balance ($0 if you paid or settled the debt) and when the "date reported" becomes more recent it can damage credit scores.

However, you do want to exercise caution when it comes to collections since simply ignoring these obligations could come back to bite you. If you have a collection account on your report which you know stems from a real financial obligation and you know that the balance is correct, then it may still be in your best interest to try to settle the debt. Unpaid debt can potentially result in being sued, wage garnishment, and judgments. Remember, if you owe a collection account, you can always try to settle it for a lesser amount and you can even hire a reputable professional to assist you in getting a better deal. Paying 100% of the collection will probably not affect your credit scores any more positively than paying a 5o% settlement in full since the account is already derogatory. Neither scenario removes the collection account from your report, so do yourself a big favor and save yourself some money if you choose to settle any collection accounts. Finally, it is very important to always, always, ALWAYS get proof of the settlement and the satisfaction of the account in writing from the collection agency.

About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter and Instagram.


Credit Cards: Evil Traps or Useful Tools?

Your credit scores are arguably the most important numbers in your life. After all, credit has an impact upon you when you apply for a mortgage, try to finance a vehicle, open a new utility account, and credit may even impact you when you apply for new insurance policy. In fact, building healthy credit scores is so important that you should consider it to be one of your top wealth building priorities. Building healthy credit scores is right up there on the financial importance scale with becoming debt free and saving for retirement.

In order to establish healthy credit scores, you have to prove to the credit bureaus that you can manage credit responsibly. One of the best ways to prove that you can manage credit responsibly is to open credit card accounts. However, for many people it can be very intimidating to have open credit cards. If you have ever made credit mistakes in the past or if you have ever overextended yourself financially and found yourself underneath a crushing load of debt then it is understandable why you may be a little gun shy where credit cards are concerned.

It can be very tempting to avoid credit cards all together if you have ever made credit card management mistakes in the past. Unfortunately, avoiding credit cards is likely to have negative repercussions where your credit scores are concerned. What you need to remember is that credit cards themselves are not evil. A properly managed credit card offers customers a lot of great benefits. Here are a couple of the best ones:

1. Fraud protection – If someone steals your cash, you have no reliable way to get your money back. If someone steals your debit card, your personal money is at risk rather than the bank’s money. If someone steals your credit card then the bank’s money is at risk, not your own.

2. Credit Building Possibilities – If you keep a $0 or very low balance on your credit cards and you always make your payments on time then you have the potential to receive a great increase in your credit scores. The longer you manage your credit cards correctly, the better the impact to your credit scores.

Those who are determined to live a “plastic-free” life with a cash only payment mentality will wind up paying more money in the long run than those who have credit cards but manage them properly. Remember, credit cards are not evil or bad. Racking up a ton of credit card debt by overusing your credit cards is bad, but can easily be avoided if you manage your credit cards properly.

Properly managed credit cards can be a powerful tool to help to build your credit scores. An individual with no credit scores (or low credit scores) will likely pay more for car insurance, home insurance, and utility deposits. Plus, while it would be nice to pay cash for a house, most of us have to take out a mortgage to purchase one. Without good credit scores you can expect to either be turned down for a mortgage or to pay a higher interest rate. A higher interest rate on your mortgage could cost you tens of thousands of extra dollars over the life of the loan.

Remember, just because you have low credit scores does not mean that you are a horrible person. Low credit scores simply mean that either you have made credit management mistakes in the past or that you have been the victim of unfortunate circumstances. Either way, you deserve a second chance and you can absolutely make a plan to begin rebuilding healthier credit again today. However, swearing off the use of credit cards is not a good strategy.

CLICK HERE to check out some great reviews for secured credit cards. It is best to do your research BEFORE you apply.

About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter and Instagram.

How Long Can Items Remain On My Credit?

One of the most common credit questions that I hear on a weekly basis is as follows: "How long can an item account remain on my credit report?" If you are a credit savvy consumer then you already know that, thanks to the Fair Credit Reporting Act, there is a legal statute of limitations regarding how long negative information is allowed to stay on your credit reports. However, the time frame is different for individual types of accounts. Here is a great cheat sheet for you to use when you are trying to determine whether an account has been on your report too long.

credit-report.jpg

Collection Accounts:  A collection can remain on your credit for 7  years from the date of default. In this case the date of default is the date that the account became 180 days past due. Please note, the 7 year time clock begins when the ORIGINAL account becomes 180 days delinquent, not when the account is sold to a collection agency. If a collection agency is illegally attempting to re-age your account or if the agency is trying to manipulate the date of initial default on your account then you have the right to dispute the account under the Fair Credit Reporting Act (FCRA).

Charge-Off Accounts: If an account on your credit reports has been charged off then the account can remain on your credit for 7 years from the charge-off date.

Bankruptcies: Chapters 7, 11, and some chapter 13 bankruptcies (only those which have not yet been discharged or have been dismissed) are allowed to remain on your report for 10 years from the date they were initially filed. Discharged chapter 13 bankruptcies are allowed to remain on your report for 7 years from the discharge date, but that date is not allowed to exceed 10 years from the original filing date.

Repossessions: A repossession should be removed from your report 7 years from the date the auto loan initially went into default.

Judgments: A judgment is allowed to remain on your report for 7 years from the date it was filed.

Tax Liens: Unpaid tax liens are allowed to remain on your credit report permanently. However, paid and released tax liens (federal, city, state, and county) should be removed from your credit reports 7 years from the date they are released. (NOTE: If you have paid a federal tax lien you may be able to have the tax lien withdrawn and removed from your reports early.)

Inquiries: When someone looks at a copy of your credit report an "inquiry" is placed on your credit report. Certain types of inquiries have the potential to negatively affect your credit scores (i.e. inquiries that occur when you apply for financing for a loan, credit card, car, mortgage, etc.). These types of inquiries are known as "hard" inquiries and are allowed to remain on your report for 2 years.

When you look at your own credit report this is a "soft" inquiry. It does not hurt your scores at all and it can remain on your credit report for 6 months. Finally, if your credit report was pulled for a pre-screened offer then this type of inquiry will not hurt your scores and it should be removed from your report after 6 months. Remember, you can always opt out of having your credit pulled for pre-screened offers at www.optoutprescreen.com.

You have rights! The Fair Credit Reporting Act (FCRA) exists to protect you if accounts are being reported on your credit report past the legal statute of limitations.  Check your credit reports at least 1-2 times every year and if you find errors or violations you can dispute them or have a professional to dispute them for you and increase your odds of success. You can access your reports for free once a year at www.annualcreditreport.com. However, a fee will apply (per credit bureau) if you wish to access your credit scores. If you would like to compare additional sites where you may access all 3 of your credit scores, CLICK HERE

About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter and Instagram.