(Tomi from Texas) I have paid off all creditors, original and collection agencies, based on info on all 3 credit bureaus. Will the 7 year time limit start all over again now that I have paid in full all my bad debt?
Dear Tomi from Texas:
You are correct that the 7 year reporting period is indeed reset when you made a payment on each of those debts. That means that those accounts can still be listed up to 7 years from the date that you resolved each debt. Your payoff date is now the date of last activity.
In previous years, this meant that your credit scores would continue to suffer because of this activity. What would occur is an old account that was in your long-term payment history would be brought back into your recent credit history. A few years ago, this would cause your scores to drop.
Obviously, no consumer should be penalized by paying off an old account. After all, this is exactly the type of responsible consumer behavior that is supposed to be rewarded in your credit scores.
Fair Isaac Corp. (creator of FICO scoring) made a change to credit scoring formulas to eliminate the penalty for paying off an old account. Therefore, even though those accounts can appear on your credit reports longer, they will not drop your scores.
Your credit scores may or may not increase after paying off an old debt. However, they should not decrease. You did the right thing, and your credit scores will continue to rise as you make more good decisions.
Tags: paying off collection accounts, paying old accounts
I did mortgage loans for awhile and I had a lot of clients that wanted to pay off their debts while trying to get a loan and just as you said it may or may not improve their credit – not immediately anyways. So, the best thing for them to do was actually pay them off while they were in escrow so their 7 year time frame did not start until AFTER they bought the house.