Can Old Debt Affect Your Credit Score?

Debt never disappears if you do not pay it off. The company might write it off to get a tax benefit, but then it usually gets sold to a collection agency, which may sue you or sell it to other debt collectors. It does eventually fall off your credit reports, but it affects your credit score for many years until that happens.

Reporting Time

Old debt usually gets charged off if you refuse to pay. For example, MSN Money writer Liz Pulliam Weston advises that banks usually write off credit card balances within 180 days of delinquency. The bill often gets sold to debt collectors and appears for seven years on your TransUnion, Equifax and Experian credit reports. Collection agencies can add their own entries, which remain for the same time period. The old debts lower your credit score until their automatic erasure in seven years, although newer information has a bigger influence.

Credit Score Effects

Many factors, including old and new debts, affect your credit score to varying degrees. Old debt, including charged off bills and collection agency accounts, are part of your payment records, which are 35 percent of your score, according to Fair Isaac scoring company's MyFICO website. You offset the old debt's effects by keeping revolving account balances low and paying current accounts by their due dates. Lenders are more interested in your current financial state than long-ago mistakes.

Considerations

Old accounts are often removable through the dispute process spelled out by the Fair Credit Reporting Act if there are any errors in the credit report entries. Get free credit reports through AnnualCreditReport.com and find even a small inaccuracy to dispute with TransUnion, Equifax and Experian. The credit bureaus are required to attempt validation with the lender, but Divorcenet.com explains that many such inquiries are ignored. The lender may even be out of business if the debt is several years old. Failure to validate means the entry gets pulled from your credit reports, raising your credit score.

Warning

Old debt has a statute of limitations that differs by state. The creditor or collection agency can no longer sue you when the statute has passed. The NOLO legal website warns that unscrupulous debt collectors buy old debt and make false threats to elicit payments. They may tell you they will put an old bill back on your credit reports and hurt your credit score, but they have no legal right to do so. Tell them you know the law and will dispute any credit report changes and report them to your state attorney general if they follow through.