Ask The Money Coach

Posts Tagged ‘credit bureaus’

It’s kind of odd that American Express wouldn’t be able to track down this old debt that you had – especially considering it wasn’t chump change. It’s very likely, though, that the $12,000 was assigned to a collection agency or simply written off as uncollectable – especially since it was apparently more than three years ago and you were just 20 years old. As you were/are a college student, I’m assuming you weren’t making big bucks back then (or now) and Amex may have known that their chances were between slim and none, in terms of getting you to pay back what you owed. What to do now? Pull each of your credit reports from Equifax, Experian and TransUnion. You can get them online free of charge via www.annualcreditreport.com. See if that Amex debt shows up on your credit reports as a collection account, charge-off, judgment, or anything else negative. If not, do nothing. If so, contact the creditor/collection agency listed only if you are financially prepared to begin a repayment plan to pay off what you owed. Otherwise, do nothing.

The Statute of Limitations on Credit Card Debt

Lastly, here are a few ways to check the statute of limitations in your state. Each state has different statutes of limitations for past-due debts, depending on if the debt was based on a written contract, an oral contract, a promissory note, or an open account. Credit cards are usually categorized as open accounts. The statute of limitations for credit card debt ranges from 3 to 10 years, based on where you live. You can click the following link for a state-by-state list of statute of limitations. http://themoneycoach1.wordpress.com/2009/09/14/statute-of-limitations-on-debt/.

Alternatively, to check the statute of limitations on debts in your state, contact your State Attorney General’s Office or go to www.naag.org and click “The Attorneys General”. I checked for Maryland, since you mentioned that state and I believe that is where you live. You are correct that the statute of limitations there is three years. All the more reason, as I suggested, to just do nothing about that debt. Chances are no one is contacting you about it because the statute of limitations has expired and the debt is no longer legally enforceable.

Your Credit Rating

This does not mean, of course, that it can not still appear on your credit report. That’s another matter entirely. Negative information, such as late payments or collection accounts, can stay on your credit report for 7 years. If this info is on your credit report, rest assured knowing that because it is more than 2 years old, it is likely doing far less damage to your credit rating than it probably did more than three years ago when the account first went delinquent.  So if I were you, I wouldn’t worry excessively about it.

If those major credit cards are costing you money, in terms of high annual fees, then you might consider gradually closing two or three of them over a one-to-two year period. But if they’re not costing you money, then I’d strongly recommend that you just keep the cards open and simply stop using them if you have no need for them. The reason you should not close those cards – nor close your department store cards – is that you will lower your available credit, which is a factor in determining your FICO score. Additionally, those cards are helping to establish the length of your credit history, another component of your credit score. Read the following article for information about how your credit scores are calculated and tips on boosting your FICO scores.

There is a lot of misinformation about what goes into your credit score. However, Fair Isaac officials have said many times that this is the heart of what happens: Your credit files – currently those from Equifax and TransUnion – are reviewed. Certain information (roughly 22 items) about how you’ve managed your credit is statistically analyzed. Ultimately, five different categories are weighted to produce your FICO score. Here is the breakdown of those five areas that contribute to your FICO score:

The Formula That Governs Your FICO Score

1.    Payment History: Approximately 35% of your score is based on this category.
2.    Amounts Owed: About 30% of your score is based on this category.
3.    Length of Credit History: Roughly 15% of your score is based on this category.
4.    New Credit: Around 10% of your score is based on this category.
5.    Types of Credit in Use: About 10% of your credit score is based on this category.

Based on this information, as well as other advice FICO freely disseminates on its website (http://www.myfico.com) and elsewhere, you can draw some good general conclusions about what actions can help your credit – and what could hurt it. For example, to increase your credit scores:

    Pay Your Bills on Time
    Payment track record is the largest component of your FICO score
    Even if you must make “minimum” payments, do it!
    One late payment can drop your FICO score by 60 to 110 points

    Maintain Low Credit Card Balances
    Don’t “max out” any cards
    Try to not to use up too much of your available credit limit
    Spread out debt over several cards instead of carrying big balances

    Keep Your Older, Established Accounts Open
    Longer credit history is scored favorably
    Resist the urge to close an account when you pay it off
    Closing accounts can sometimes lower your FICO credit scores