Does Paying Old Credit Card Debt Hurt Credit Scores?

Debt recovery agencies have increased the intensity of their collection activities. This has resulted in many debtor’s agreeing to a new repayment plan to pay off old credit card debt and stop creditor calls. Although it is reasonable to assume that making a monthly payment will lead to the cessation of debt collection activity, this may not be the case. The sands of time, in relation to the statute of limitation on debt, are reset giving the lender greater legal recovery powers.

The Statute of Limitation on Debt Collection

Paying old debt may seem like the right thing to do, but it could hurt credit scores. The statute of limitation on debt collection doesn’t permit the creditor to recover money through the courts once x years have elapsed. For example, it isn’t possible to take legal action to recover debt in New Jersey if the account has remained delinquent for a period of 6 years. The length of time varies considerably between U.S. states, but it is generally between 3 and 6 years.

Paying Old Credit Card Debt Could Hurt Credit

Making partial payment means that debt recovery agencies can now go through the courts to recover the money they’re owed. For example, a homeowner may find that a vehicle repossession deficiency subsequently becomes a lien on their property. Never make a payment or acknowledge old credit card debt or the clock will be reset to year zero. If this advice is unheeded, credit reference agencies will now display this information which will hurt credit scores.

Paying Old Debt Will Re-age It

Credit bureau scoring pays far closer attention to new debt. In fact, up to 10% of a FICO credit score is accounted for by new credit. If an account is displayed without any recent activity, its importance starts to diminish. Make a payment towards old credit card debt and it will be re-aged and become ‘new’ again. Given the way credit scores are calculated, this can only serve to hurt credit and make it more difficult to borrow money in the future.

Credit Reference Agencies Display Bad Credit for 7 Years

Liz Pulliam-Weston of MSN Money stated: “Federal law typically requires credit bureaus to drop negative information after seven years. The clock usually starts ticking 180 days after the account first goes delinquent.” The exception to this rule is chapter 7 bankruptcy which will be displayed by Experian, Equifax and TransUnion for a period of 10 years. Debt recovery agencies aren’t legally permitted to re-age debt so the debt will no longer be collectible.