The Seven Year Rule: Does Your Debt Really Go Away After 7 Years?
The “rule” of seven years is perhaps the most prominent credit report factoid known by consumers and the general public. It is actually severely misunderstood by almost everyone that thinks they know it.
Here’s a hint: It’s not a rule; it’s a law in the Fair Credit Reporting Act.
A common statement I hear is “after seven years you don’t have to pay it anymore.” This hasty generalization is very misleading. The specific law allows for a creditor to report negative account statuses to the credit bureaus for UP to seven years. (7.5 years to be exact, more on that later.) This law only governs how long the information can remain on your credit report. It has nothing to do with the liability you have on the debt. You will always owe it.
The debt never actually expires, there is no “rule” or “law” that forces a debt to expire after a certain period of time. Most creditors and collection agencies simply give up collection efforts after they lose the ability to credit report an account. This is why consumers can sometimes be shocked when they receive a collection notice for a debt that is often 10, 12, or even 20 years old. Guess what? Technically you still owe that money, the collection agency just ran out of any meaningful tools to collect it. After seven years has passed, nobody will ever see it again on your credit report. It’s like it never happened…
Noww that we have cleared that up, let’s talk about the most important part of this seven year rule.
When does the seven year clock start ticking, and when does it stop ticking? The law clearly says the clock starts 180 days after the original delinquency that led the account to be charged-off or sent to collections. This is known as the “terminal delinquency.” Technically, that means the clock starts six (6) months after your very last payment on the account with the original creditor. Since I see credit reports every single day, I can tell you with certainty that even though the accounts can report for 7.5 years from the last payment you made, credit bureaus today are only reporting for exactly seven (7) years. Not 7.5, even though technically they can. Read the exact text in the FCRA here.
Here is how the seven year rule can apply to items on your credit reports:
- Judgments – Seven years from the filing date whether satisfied or not.
- Collections – Seven years from date of default with the ORIGINAL creditor, not seven years from when the collection agency buys or is consigned the debt.
- Charge Offs – Seven years from the date of the original terminal delinquency.
- Settlements – Seven years from the date of the original terminal delinquency
- Repossessions and Foreclosures – Seven years from the date of the original terminal delinquency.
- Late Payments – Seven years from the date of occurrence.
Can making a payment, or paying a collection reset the seven year statute?
A lot of consumers I speak with are afraid to pay off a collection or even speak to the collection agency because they fear doing so will re-age an old debt and reset the seven years. This is absolutely false, nothing you do can reset the seven years. Paying it won’t, calling them won’t, disputing it won’t. (A partial payment can reset the four year statue for filing a civil suit against you, but that’s a whole different topic we’ll cover in a future blog. )
Just because the FCRA and the law say that’s how long the items can credit report for, doesn’t mean things won’t report for longer. Credit bureaus are handling millions of files and mistakes definitely happen. Collection agencies can also “re-age” the debt (illegally) causing the reporting period to reset. It’s up to you to know your dates and hold the credit bureaus accountable to the reporting statute of limitations, AKA the seven year rule!