Matter out of place

Personal finance weblog focusing on debt management and credit card debt

Making Old Debt New

As you may know, most negative marks don’t stay on your credit for more than seven years. In fact, I think that only bankruptcy will remain on your credit report for ten years. This means that if you had the same kind of trouble I had in college, you can repair your credit as a young adult before you get ready to buy a house or start a family.

If you defaulted on a loan, a lender would not like the fact that in seven years you could completely forget about that debt, and no one would ever know from your credit report that you defaulted. So, lenders try to extend the time your old debts stay on your credit report by using some sneaky tricks.

One way that they do this is by asking you to pay “whatever you can.” An item is removed from your credit report seven years after the last activity. If you pay ANY amount on an account, even a dollar or two, the clock starts over. So it doesn’t always make sense to pay off an old account, particularly if the account hasn’t had any activity for several years.

Another trick that creditors use to extend the amount of time that a debt stays on your credit report is to report the debt as new. This is ILLEGAL. If a company does this to you, you can sue them for breaking laws set forth in the Fair Credit-Reporting Act. If you notice that an old debt on your credit report was recently reported as new, you can first ask the credit-reporting agency to investigate. By law, the credit-reporting agency must investigate and draw a conclusion within 30 days. If they are unable to verify the debt within that time, the item must be removed from your credit report. If the credit-reporting agency says they verified the information and it is accurate, you should file suit against the creditor who is breaking the law. The National Association of Consumer Advocates can help you find a lawyer who specializes in this area of practice.

Credit card companies will also sell a debt that is approaching the seven-year mark to another credit card company in order to make an old debt new. The purchaser of the debt must then get the debtor to agree to pay the amount. They usually accomplish this task by offering you a new credit card with a special balance transfer rate. However, if you read the fine print, you will discover that the credit card application asks you to allow certain balances to transfer to that card. If you are enticed by the low rate, they’ve got you! Be careful and read ALL the fine print.

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