How Long Will Unpaid Credit Debt Stay on Your Record?

Credit debt includes things like Visa, Mastercard, American Express and Discover credit cards, retail accounts, gasoline cards and loans. These accounts typically require monthly payments when there is a balance. People sometimes stop paying, and the FICO credit score company explains that this lowers their credit score, since payment history accounts for 35 percent of that number. Unpaid debts eventually lose their effect because they are removed from credit bureau records.

Process

Creditors report unpaid credit card debt is reported to Equifax, Experian and TransUnion, the three major credit bureaus. These credit bureaus reflect the length of the delinquency in their records. Liz Pulliam Weston, a financial columnist for MSN Money, explains that lenders often "charge off" unsecured debts like credit cards when there is no payment for at least six months. Charging off the account is simply a term that means the company doesn't expect to get paid -- the debtor still owes the money. The credit card compnay can still try to collect or sell the account to an independent collection agency. Lenders are allowed to seize the collateral on secured debts when the borrower defaults. For example, auto lenders repossess vehicles when car loans go unpaid, and banks foreclose on homes when mortgages go into default. All this activity goes onto the person's credit reports.

Time Frame

Credit reports show unpaid credit debts for up to seven years, starting from the initial delinquency date. FICO considers the information in its credit score calculations, and banks and other lenders see it whenever they review the reports in response to credit applications. Bad debt has its worst impact in the first few years. It loses power over time for people who rebuild their credit by paying current bills on time for several years.

Removal

The credit bureaus usually erase old unpaid debts automatically from their records after seven years. Consumers can check that such records have been removed by ordering their credit reports from each bureau through annualcreditreport.com. The bureaus are mandated to give each consumer one free report per year by the Fair Credit Reporting Act, and people who find old debts that are still listed can dispute the information and ask for its removal.

Alternative

People who have many unpaid debts and who cannot handle their current accounts sometimes file bankruptcy as their last option. This court action stops proceedings like foreclosures and vehicle repossessions and gets rid of most debts or forces creditors to accept a repayment plan. Bankruptcy appears on credit reports and stays for 10 years, so it affects a person's credit score and ability to get new loans and credit cards for a longer period than unpaid debts.

Warning

Paying unpaid debts does not necessarily improve a person's credit records. Steve Bucci, the Debt Adviser columnist for Bankrate.com, recommends getting an agreement from the creditor to change the account status to "paid as agreed" or to pull it from the credit reports entirely in exchange for paying it off. Lenders often accept less than the original amount in negotiated settlements.