Credit bureaus create credit reports using the data reported to them by lenders and other creditors. Your FICO credit score is based upon the data contained in your credit report. The score ranges from 300 to 850. Bad debts can lower your score, so it's imperative that you know how long bad debt can remain on your report.
The Fair Credit Reporting Act
Credit bureaus compile data on consumers. That data is supplied by lenders and other reporting bodies, such as the courts. This information is distilled into a credit report. The Fair Credit Reporting Act of 1970 is the federal law that governs credit reports and how credit bureaus compile and use those reports. The law covers a number of consumer rights and provides consumers with the right to sue credit bureaus in court for rights violations under the FCRA.
The FCRA limits the amount of time bad debt can remain on a credit report. Under the FCRA, negative credit accounts remain on a credit report for up to seven years. There are certain exceptions, however. Chapter 7 and 11 bankruptcy can remain for up to 10 years. Non-discharged or dismissed Chapter 12 or 13 bankruptcy can remain for up to 10 years as well; however, discharged Chapter 12 or 13 bankruptcy only remains for up to seven years. Unpaid tax liens remain for up to 10 years in California and indefinitely in all other states.
For negative credit accounts, the seven-year clock begins running from the first date of delinquency with the original creditor. This is important not only for how long the account remains on the credit report by the original creditor, but also impacts collection accounts. A creditor may turn a delinquent account over to a collection agency. That collection account will also appear on your report, however, it can only remain for up to seven years from the first date the account came delinquent with the original creditor, not seven years from the date the collection agency received or purchased the account.
If you have bad debt on your report that is beyond that applicable statue of limitations, you have the right under the FCRA to file a dispute with the credit bureau. The credit bureau must remove the account if is beyond the time limit. File a dispute online at the bureau's website or by phone or mail. Find the phone number and address for the bureau on your credit report. Bureaus have up to 30 days from the day they receive your dispute to complete the investigation and make changes.
Although the FCRA limits the amount of time a bad debt can appear on a report, that item can still follow you even once it's removed from the report. An example of this is bankruptcy. According to financial expert Dave Ramsey, some lenders, and even some employers, have applications that ask if you've ever filed bankruptcy, not just recently but at any point in your life. If that answer is yes, certain companies may not want to do business with you. If you lie about this on a loan application, the lender may consider that as fraud.