by John Ulzheimer, Credit Expert for CreditSesame.com
Last month I wrote about the Fair Credit Reporting Improvement Act of 2014 and how it could possibly alter how long negative information remains on consumer credit reports. The article prompted several of you to reach out and ask me to clarify just how long negative information is allowed to remain on credit reports under the current iteration of the Fair Credit Reporting Act. The answer, as usual, is going to vary based on the scenario but there are several groups that information can fall into vis-à-vis credit reporting.
No More Than Seven Years
The vast majority of derogatory information can remain on your credit files for as long as seven years. The list is going to include late payments, collections, judgments, settlements, foreclosures, repossessions, released tax liens and charged off accounts. Those items make up the bulk of derogatory information appearing on consumer credit reports.
The seven-year period begins from the date of default, or 180 days after the date of the first delinquency that preceded the default or collection activity. And despite widespread mis-blogging on this topic, there is absolutely nothing that can legally restart the seven-year clock of credit reporting once it has already begun including, but not limited to, making a payment, settling an account or disputing an account.
No More Than Ten Years
You'll notice that I'm titling these sections with "No More." That's by design because the Fair Credit Reporting Act allows the credit reporting agencies to maintain derogatory items; it doesn't require that they do so. The credit bureaus could choose to maintain derogatory items for six months or not report them at all. It's entirely voluntary in almost all scenarios as long as they maintain the negative items "no more" than they're allowed.
That being said, there's a very small list of derogatory items that can remain on credit files for up to ten years. A Chapter 7 bankruptcy, which is the bankruptcy that eliminates all statutorily dischargeable debts, can remain on a credit report for up to 10 years from the date the bankruptcy was filed. A Chapter 13 bankruptcy, which is the bankruptcy that requires you to make payments to a court assigned trustee who distributes the monies to your creditors, can remain on a credit report for up to 10 years as well.
No Time Limit, Meaning Indefinite
There are two items that do not have to be removed from your credit files, ever, although the credit bureaus can certainly choose to remove them eventually. Defaulted and unpaid federally guaranteed student loans aren't even mentioned in the section of the Fair Credit Reporting Act that defines how long negative items can remain on your credit file. In legal jargon that means the Act is "silent" on the issue, which means they can be maintained indefinitely as long as they remain unpaid.
Unpaid tax liens can also remain on a credit file indefinitely. Again, the Act is silent on the issue of how long unpaid liens can remain, which means they don't ever have to be removed. Once you pay or settle your tax lien the tax authority will file a "release," which is when the seven-year credit reporting clock begins. Tax liens, however, are removed immediately per the credit bureaus' policies if the taxing authority withdraws them, which is a different disposition than a release of lien.
Bet You Didn't Know...
There is language in the Fair Credit Reporting Act that allows the credit reporting agencies to maintain all derogatory information indefinitely under certain conditions. If the credit report is going to be used for a credit transaction with a principal amount of $150,000 or greater, life insurance underwriting in the amount of $150,000 or greater, or for employment screening for a job that's expected to have an annual salary of $75,000 or greater.
Even though they're allowed to do so, at this time the credit reporting agencies choose to not maintain derogatory items longer than normal in these aforementioned scenarios. So, before you go beating up on the credit reporting agencies you should probably keep this in mind. They're siding with consumers on this one.
This post originally appeared on CreditSesame.com. John Ulzheimer is a nationally recognized expert on credit reporting, credit scoring and identity theft. He is twice Fair Credit Reporting Act certified by the credit industry's trade association and has been an expert witness in over 140 credit related cases to date. Since 2004 John has been interviewed and published over 3,000 times on the topics of personal finance and consumer credit. Formerly of Equifax and FICO, John is the only recognized credit expert who actually comes from the credit industry.