Your Credit File Smells Funky

One little checkbox -- one wee square that failed to catch your eye as you were distracted by the line forming behind you at Best Buy and itching to finalize six months of 0% financing so you could take that five-disk CD changer home and rock out on "random play" -- can haunt you for a long, long time. In fact, you'll be reminded of that naked, overlooked checkbox for the next seven years.

It's hard to know which passing moment will be a life-changing one. Is the stranger who just smiled at you on the elevator your future wife? Did stopping for that yellow light save three lives? Is the time you inadvertently agreed to a store's credit card add-on -- resulting in an additional credit inquiry on your file, another line of credit to your name, and a spending temptation too enticing to refuse -- the reason you were denied a pre-approved mortgage on your first home?

For so many, a split-second shopping decision turns into a financial butterfly-flapping-its-wings scenario. The credit scoring system has a long and unforgiving memory (and a very exacting way of seeing how you measure up). Skipping a payment, forgetting to pay a tax lien, even seemingly innocuous actions such as applying for a store charge card, should not be treated lightly. In fact, most items reported to the big three credit reporting bureaus -- Equifax, Experian, and TransUnion -- stay there for at least seven years.

Think about that when you're tempted to apply for the Banana Republic card just to get 10% off a cashmere sweater set. Even if you cancel the card the moment it arrives in the mail, you -- and anyone checking your credit report -- will be reminded of that shopping spree for the next seven years.

Luckily, most sins of spending past have an expiration date. Does something in your credit file smell funky?

Check your credit expiration date
"When will... ?" Seven years.

Just about anything reported in your credit file has a seven-year shelf life. Late payments (a missed payment on a credit card, store charge card, mortgage, or car loan) by more than 30 days can linger on your report for up to seven years. If you space out and forget to pay a bill on time, call your lender ASAP and say your mea culpas like you mean it. Preventing the tardiness from being reported in the first place is your best bet. And it never hurts to ask. Nicely.

Relative newcomers to the credit reporting game are doctors and hospitals. Medical collections are increasing, and paying your dermatologist bill late could result in a seven-year blemish on your report. Even if you are in the midst of disputing a bill -- perhaps you don't want to pay $22.74 for a box of Kleenex and a cup of ice -- pay the bill on time and continuing disputing any erroneous charges. If you withhold payment -- even if you win the end dispute -- the late payment will fester for seven more years. In fact, the only way to have a late payment from a medical institution (or any service provider, for that matter) removed is to prove that you never received the bill in the first place.

Ironically, late payments can be a bigger problem for star credit customers than for frequent offenders. The small bruise on the perfect apple stands out more than brown spots on the beaten-up fruit. Although the impact (percentage wise) may hit the good customer harder, at least she has more wiggle room when it comes to getting an infraction or two excused.

If an account goes unpaid and is sent to collections, your credit report will carry signs of the misdeed for seven years from the date of the first missed payment -- not the date your account was sent to collections. Most service providers consider a payment missed after they fail to collect on it within 190 days. When you finally pay it off, the account will carry a "paid collection" notation. If you don't pay it in full, or if you get your lender to agree to a reduced settlement, your report will refer to it as "paid for less than total due." Similarly, if your lender and his hired collection muscle gives up on you and absorbs the loss, the account will include a "charge-off" notation for seven years.

A word of advice for those with accounts in collections: Do not fall for credit reporting lies perpetrated by unscrupulous collections, debt consolidation, or counseling companies. Run fast and far from anyone who tells you that paying off an account will remove it from your report. Also ignore those who say that the length of your record will be extended if you try to negotiate or pay the debt on your own. Hogwash.

Judgments -- small claims, civil, and child support ones -- will stick around for, you guessed it, seven years.

The seven-year rule has several exceptions. (You expected to escape the tangle of bureaucratic red tape, did you?) Closed accounts can potentially remain on record for the rest of your financial life. However, only the accounts that were in good standing -- no late payments, paid in full -- tend to stick around until the crickets chirp (10 years or longer). The Fair Credit Reporting Act calls this a "closed positive" account. These are mostly welcome notations, as they illustrate your long and stellar credit history. Any closed accounts that have a negative notation (such as a delinquency) will fall off your report seven years from the date of your misdeed.

Credit report inquiries -- by lenders, employers, landlords, insurance companies, and yourself -- tend to fall off in two years or sooner. These appear as simple notations on your report. (Your credit report lets you see who has the keys to your credit file -- you might be surprised.) Too many of them -- particularly "hard inquiries" from lenders -- can cause your FICO score to take a slight hit, although the algorithm used to calculate scores takes into account a person who is mortgage shopping, for instance. "Soft inquiries" are noted when you or a potential employer takes a peek into the folder. They have no effect on your score. If you're shopping for credit over a long period of time, let your lender know so that suspicions and score dips can be put into proper context.

Bankruptcy obviously raises the lending world's ire. You'll bear the brand of Chapters 7, 11, 12, and 13 for 10 years from the filing date. However, the accounts that were included in the bankruptcy will follow the seven-year rule outlined above. And this is the one rare case where 13 can be a lucky number: Some credit reporting agencies will kindly wipe the slate clean for Chapter 13 bankruptcy after seven years.

Tax liens -- city, county, state, and federal -- fall under the seven-year rule once they are paid. However, unpaid tax liens have a much longer shelf life -- 15 years to never -- because the FCRA frowns harshly when Uncle Sam gets stiffed.

If any of these expiration dates have passed and your blunders are still haunting your file, tell the reporting creditor that it's time to forgive and forget and remove the entry. (TrueCredit.com -- a division of TransUnion -- has a robust area on disputing erroneous credit report entries.) Don't overlook erroneous information on your report. Even if it's not your boo-boo, it's up to you to get it removed.

Do you have several years until your record is wiped clean? Good news: Lenders and loan officers tend to view the lesser credit blunders of your past with that same bemused guffaw that your dad uses when he recalls your teenage years. The farther in the past your youthful indiscretions took place, the less they affect your score. Lenders want to know how you have handled credit lately.

So before you start hot-rodding around town with a wallet full of plastic and a lax attitude about paying your bills on time, consider how your actions will look in cold black-and-white notations seven years from now when you want to settle down.


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