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Gettin’ Out of Debt: Part II

Five years have passed since I helped my brother-in-law on the path to get out of debt [1]. He’s learned to only spend what his paycheck brings in and is considering buying a house.

Because his credit report was trashed from late payments, collections, and settlements, he wanted me to check into the statute of limitations for credit reporting. Originally, we didn’t explore an avenue of disputes or other credit repair, since all the negative actions were correct. Five years ago, we discussed that he would have to “wait it out” for him to prove that he can handle credit again.

Obtaining His Credit Report

He got a free copy of his credit report from Annual Credit Report [2]. In addition, he wanted to see his credit score, so I showed him the offer for Free FICO Scores & Credit Reports [3]. Armed with the information of his financial past, he was ready to take some action.

Statute of Limitations

For all debts after December 29, 1997 the reporting period is 7.5 years. The clock starts ticking on the date of the last missed payment; 7.5 years from that month, the negative trade line remarks must not show on the credit report.

It’s common to believe that taking action on the debt will start the clock over, however, that’s a misconception (one that I didn’t know about either!)

The following events do not restart the clock:

  • The creditor writes off, sells, or transfers the debt.
  • You sign a payment agreement with a collection agency.
  • You dispute the debt or negative remark with the credit bureau.
  • You make payments or other activities on the account.

This point is worth restating: if you make payments on the debt, it does not restart the clock!

Please note, that some states have their own laws. Be sure to check your home state. In addition, the reporting laws for bankruptcies are different.

Once the reporting time period expires, it’s OK if the trade line still shows up on your credit report. It’s the negative trade line remarks from the action that began over 7.5 years ago that cannot show up.

Next Steps

Now that he has the information for the statute of limitations, he can dispute any negative remarks from over 7.5 years ago. As time goes on, his credit will be restored, and he can begin house shopping!