Does Old Delinquent Debt Have Less Effect on a FICO Score?

Credit reports include all of a person's credit related activity, both good and bad. FICO credit scores are calculated based on the reports' contents. Everything is considered to an extent, but there are differences in the way new activity is weighed against older items, like delinquent debts dating several years back.

Definition

A FICO score is the most popular version of a credit score, a three digit number that affects whether a person's credit applications are approved and how much interest is charged, according to MSN Money. Scores above 720 are desirable, while those below 620 are labeled sub prime and cause problems with getting loans.

Factors

FICO explains that it calculates scores based on numerous factors, including delinquent accounts. Debt affects scores in several different ways, depending on whether it is only mildly delinquent or whether it is old enough to be charged off. Thirty-five percent of the overall score is influenced by debt, including payment history, charge-offs and collection accounts, repossessions and foreclosures.

Time Frame

The Federal Trade Commission states that credit reports list most delinquent debts for a seven-year period. Late payments morph into more serious delinquencies in about four to six months, when Bankrate Debt Adviser columnist Steve Bucci explains they are usually charged off. This action means the lender no longer considers them an asset, but it can still try to collect them or sell them to third-party debt collection firms. Charge-offs and collection accounts have a much worse effect on FICO scores than occasional late payments, and all delinquent debts have some influence for the whole seven year reporting time.

Considerations

Bucci explains that old delinquent debt loses much of its negative credit score influence over time. Lenders usually put the most importance on the most recent two years of credit history. A perfect payment history of at least 24 months shows that the consumer is serious about improving the credit history and raising the score. The old problems cause more trouble if recent activity is bad too because it is part of an overall trend that shows poor financial management skills.

Warning

People who are seeking mortgages or other large loans sometimes pay off old debts to improve the credit score. MSN Money writer Liz Pulliam Weston warns that this may actually hurt the score because it adds recent activity, and paid charge-offs are still viewed as negatives. Debts that are five years old or more do not affect credit records too heavily. They will drop off credit reports in two years or less, removing their influence completely, so it is often better to ignore them rather than pay them. The payment can cause them to stay on credit reports for another seven years because it creates a new account activity date.