It’s no surprise to learn that collection accounts have the ability damage your credit scores for up to seven years from the date of the original account’s default. If you are applying for a home loan or otherwise trying to clean up your credit, you may choose or be forced to pay off your collection accounts. But if you pay off a collection account, doesn’t that restart the credit reporting clock and allow it to remain on your credit reports for an added seven years? Or is that a myth?
The “Purge From” Date
First things first, let’s address one of the biggest credit myths that exists regarding collection accounts – “Paying collection accounts keeps them on your credit reports longer.” This is incorrect. Nothing, I repeat, nothing you can do can cause a collection to stay on your credit reports longer than seven years, thanks to the Fair Credit Reporting Act (FCRA).
You can dispute them, settle them, pay them, and argue about them…it doesn’t matter. Seven years is it.
Once a collection account has found its way onto your credit reports it is allowed to camp out there for up to seven years from the date of default on the original account. This date is commonly referred to as the “Purge From” date, which is when the seven year clock starts to tick.
The seven-year clock is also about to change thanks to a settlement the credit bureaus made with the New York Attorney General’s office, but only as it relates to medical collections paid by insurance. Once your insurance company pays a medical collection, the credit bureaus must remove it from your credit reports. This policy will not take place until June of 2018.
I believe the reason this issue comes out of confusion over another issue regarding defaulted debts. Each debt has a statute of limitations regarding how long the creditors/collection agency can sue you to collect the debt. This amount of time ranges from as little as 3 years to as long as 15 years, and varies by state. If you have a debt that has expired and can no longer be litigated then it has become “time barred” debt.
If you make a payment or promise to make a payment on a time barred debt then you may have just restarted the clock and the collector/creditor may be able to sue you. This, however, has absolutely nothing to do with credit reporting. I believe some people are confusing the issues of credit reporting and time barred debt.
If you live in a state where your defaulted debt has become time barred because of state law, then you still owe the debt. The creditor just cannot sue you to collect it. And, if you live in a state where the debt has become time barred but it became time barred before seven years has elapsed, then the creditor cannot sue you to collect the debt but they can continue to report it to the three credit reporting agencies. And, the collection agencies can continue to maintain it until it has run its full course of seven years. Then it will be removed…forever.