“If your ultimate goal is to financially survive, pay off debt with limited funds, and build credit for the future, follow my advice.”
– Angel Rich
With the bright lights of the credit score beaming on you unearth your Credit Report and dissect it (see previous articles). Gain a full understanding of every debt you owe, when the accounts were opened, all payments made, and the final balance owed after interest. Most importantly, notate how far away the debt is from being on your report for seven years. If it is five years old, write “2” beside the debt.
Arrange your debts -7 thru -1 and pay them in that order with priority given to the larger amounts.
Your SOL or Statute of Limitations describes the legal length of time that a debt can be collected. Nevertheless, credit companies will try to retrieve debt after the statute of limitations outside of the courts. This behavior should be reported to the credit bureaus.
If any of your accounts were sold or charged off more than seven years ago, except student loans, it is illegal to have them still represented on your credit. The harmful information should have been reported by the creditor or yourself to have it removed at the seven-year mark. After the seven-year lifespan of the debt, collection companies are not allowed to legally resubmit the information. This law is known as the Fair Credit Reporting Act (FCRA). This law controls the behavior of all creditors and credit agencies.
Beware of multiple creditors on your credit report for the same debt. You are only supposed to have one creditor per debt, regardless of the age, origin, or amount of debt.
FCRA specifically states that “information in a consumer’s file concerning accounts that have been charged off or placed for collection must be completely erased after seven years from the date of last activity.”
If your large debt item has been dormant for 4 years and you have a pile of other debt, making a payment would only restart the waiting period. Instead, focus on newer debt and ways to build credit.
For the most part, your credit life is based on your credit report. However, there are special circumstances where additional factors are reviewed that include car insurance, student loans, and apartment rentals. If you wish to gain credit from a previous debtor, you will be required to pay the debt and perhaps a fee. These types of debts are called stale debts as they often get resold for fractions of their value – making the smallest of payments worth the investment. Upon paying or settling any debt, always have the creditor agree to immediately remove it from your credit report.
Remember paying your debt does not always increase your credit score; it just helps you sleep better at night. If your goal is to raise your score, pay smarter!