Will Paying 3 Year Old Debts Increase Your Credit Score?

Having old, unpaid debt can bring penalties, fees and collection efforts. The unpaid debt also brings a negative blow to your credit score. The worst damage to your score occurs in the first 24 months following the negative entry. Ironically, paying three-year-old debt may hurt your credit score rather than help it.

Statute of Limitations on Debt

A statute of limitation limits the time a creditor can legally take you to court to collect on the debt. The SOL depends on the type of debt and the state where you live. To determine the statute of limitation on debt in your state, contact your local clerk of the courts office and ask for the website or a document showing the state SOL on debt. When a debt is past the SOL, the law considers the debt no longer collectible. Choosing to repay the debt at that time is your choice, but you should realize it resets the statute of limitations. The creditor can then resume collection efforts, including phone calls, and he can sell the debt to another collector.

Making Payments

Making payments on a debt more than three years old is something you must do with extreme caution. When you begin to make payments, you bring the debt current. Failing to make a payment, or defaulting again on the debt, will create additional damage to your credit score and may allow the creditor to take legal action. For example, if the SOL in your state is three years, and your unpaid credit card debt is more than three years old, the credit card company cannot get a judgment against you. The company can ask you for payment but cannot pursue legal help to collect. Making payments on the old debt at that point does not help your credit score.

Helping the Score

Your record of late payments is what damaged your score. Even if you pay off the debt, those late payments still show on your credit report. By the time an account goes to collection, the lender or credit card company will have closed it. Thus, the credit bureaus no longer calculate the amounts as part of your use of credit.

Buying a House

Paying off collection accounts might not help your credit score, but it comes into play if you plan to buy a house. When your potential lender checks your credit report, you must have all collection accounts paid in full if you hope to get financing.