Navigating the Pros and Cons of Clearing Old Delinquent Credit Card Debt
When it comes to managing your finances, conventional wisdom advocates paying off credit card debt promptly to enhance your credit score and overall credit history. However, this strategy may not universally apply, especially when dealing with past-due, aged, outstanding credit card balances.
Cons of Paying Off Old Credit Card Debt
Resetting the Clock
The statute of limitations dictates the time within which creditors can legally pursue legal action for missed debt payments. This period varies by state, typically spanning from 3 to 10 years. Remarkably, engaging with your credit accounts, even for the most basic activities like making a credit card payment, acknowledging the debt, or using the credit account, restarts this clock. If your debt is nearing the statute of limitations, leaving it untouched might be a strategic move.
Learn More: Guide to the Statute of Limitations on Debt
Letting Your Debt Charge-Off
Once a debt is charged-off (meaning the creditor has written off your debt as a loss and disallowed further use of the account), it remains on your credit report regardless of subsequent payments. Even if you pay off late fees or other charges, the credit report will label it as a 'paid charge off,' offering minimal benefits regarding credit score improvement. While it does look better to lenders manually looking through your credit report, it’s unlikely to improve your credit score or change your status as a credit risk for most lenders during lending decisions.
Learn more: What Does Charged Off as Bad Debt Mean?
Covering the Cost of Credit Errors Twice
A credit report limit is the amount of time debt will remain on your credit report and reflect on your credit history. For most debts, this limit is seven years. The conventional seven-year limit for debts on credit reports means that if you've endured the negative impact for this duration, paying it off might not yield significant credit score improvements.
Learn more: Do You Understand What a Credit Report Limit Is?
Pros of Paying Off Old Credit Card Debt
Stopping Debt Collectors
While the statute of limitations shields you from legal action, creditors can continue pursuing a repayment. Clearing old debts can halt the persistent calls, letters, and emails from debt collectors, offering you peace of mind and safeguarding you from baseless threats. While the statute of limitations does prevent debt collectors from suing you over debts, you are still responsible for repaying your credit card bills. This means that most creditors have every right to continue contacting you for debt collection, credit card payments, late payment, or to offer a payment plan – and they will.
If you’re suffering from keeping debt collectors away, we can help. Reach out to our debt counselors to find out what debt solutions will help keep collectors from calling. You may be a fit for a debt management plan or other debt relief option.
Looking Beyond the Credit Score
Certain lenders delve deeper into your credit history beyond just the credit score – reviewing your credit utilization rate and available credit. Resolving old unpaid balances might not directly impact your credit score but can enhance your eligibility for loans, provide better loan terms, and result in credit limit increases.
The Chance to Improve Credit Report
Paying off old debts before they reach the statute of limitations or credit reporting deadline can positively influence your payment history, a significant factor in your FICO score. This move can boost your credit score and contribute to a healthier credit profile. Your payment history makes up 35% of your FICO score; making payments towards your debts may be just what you need to give your good credit score a boost.
Related Article: Quick Ways to Improve Your Credit Score
Removing a Charged-Off Debt That’s Been Repaid
While paying a charged-off debt won't directly boost your credit score, exploring avenues to remove the charge-off from your credit report can be worthwhile. Negotiating with debt collectors, correcting inaccuracies, or seeking professional assistance are viable options.
There are a few different ways you can try to get the charge-off removed from your credit report once you pay the debt:
- If you have a charge-off on your credit report, it’s likely been sold to a third-party collection agency. If your debt is still unpaid, consider debt negotiation. This process involves calling your debt collectors and negotiating the removal of the charge-off from your credit report in exchange for all or partial payment of the debt.
- Similar to getting out of a traffic ticket on a technicality, you can pull your credit report and look for inaccuracies on the negative entry to the credit bureau. This could include a misspelling, incorrect date, late payment, credit utilization rate, or incorrect account number. If you come across any information that isn’t correct, write a letter to each of the three credit bureaus explaining that there’s inaccurate information that must either be removed or corrected. Reach out to our debt counselors to obtain guidance on what to include in your letter.
- If you’d rather let a professional handle the process, there are credit repair specialists within the law field. These experts contact each credit bureau and will explore every avenue possible to get these negative entries removed from your credit report.
Check Your Credit Report Regularly
Maintaining a healthy credit score involves periodic checks of your credit report. Regular reviews can uncover inaccuracies, unauthorized transactions, or other issues, allowing you to take swift corrective actions. You can obtain a free annual credit report from each of the three major credit bureaus—Equifax, Experian, and TransUnion—by visiting annualcreditreport.com.
Are You Struggling with Debt?
Old debts, regardless of age, can impact your financial standing. Seeking professional advice can help you navigate the complexities of debt management, placing you in a more favorable credit score range. Reach out to our debt counselors today for a free, confidential session to explore tailored solutions for your financial well-being. Our counselors can help you find answers to your questions and create an actionable plan to have your credit score in the higher end of the credit score ranges. To learn more, read about our services.
