Editorial Policy

Age of Debt Matters When Bills Go Unpaid

Erica Sandberg

November 28, 2011

QDear Erica,
A few years ago I had a credit card that went bad. I only used it a couple of times and owed about $130 on it. I was in college at the time and, no, I didn’t pay. After a while, I moved and the bills stopped coming. I was advised that they wouldn’t sue me for this small of an amount and so I forgot about it. Well, now it looks like they found me and they’re calling me. I want to know what my rights are. Can they sue me? What about my credit? What should I do now? Thanks. — Ryan

ADear Ryan,
Before launching into your rights, I must at least touch on your responsibilities — and how you abandoned them some time ago.

That credit card didn’t go bad, Ryan. You treated it badly. There’s more than a grammatical difference to that statement.

The way you phrased it, the credit card company did something wrong, but it was you who broke the contract by not repaying what you borrowed. It’s important for you to acknowledge the error of your ways, so you don’t do it again.

OK, now I can get into how you might be protected. Ask Erica

First, let’s talk about your fear of a lawsuit. Whether or not the creditor (which is certainly a collection agency by now) can sue you for the delinquent balance depends on state law.

The statute of limitations for lawsuits on unsecured debt ranges quite a bit. For example, in Kansas, a creditor has just three years in which to take someone to court for a bill, but in Montana they would have up to eight years.

Check the rules for your state. Then, pinpoint the date that you either last made a payment or when the creditor charged off the account and let the debt collectors have at it.

From the later date, count forward to today. Still within your state’s statute of limitations? They can sue you. Will they? Probably not, because the amount is so small. But there are no guarantees and I’ve seen lawsuits happen for less. On the other hand, if the time frame has run, you can set your worries about being sued aside.

As for your credit reports, the delinquency is being listed on them. Everything you did with that account (and other loans and lines of credit) has been recorded from the moment you signed for the card. When you missed the first payment cycle, a “30-day late” note appeared on the reports. At that point, the damage wasn’t so tragic.

However, after you reached the 180-day delinquency mark, the issuer wiped their hands of the debt, sold it to a collection agency and your credit reports took a beating. You bruised your FICO score, too, since “payment history” is the weightiest factor in their calculation methods.

Still, the age of the debt comes into play again. The older it becomes, the less impact it has on your credit rating. Also, if you have other credit accounts and have been using them well, your FICO will have improved even faster.

After seven years, evidence of that defaulted account will be removed from your reports entirely and will no longer be included in your scores.

So to answer your last question of what to do now, you can go one of two ways: Pay it off in full and see an immediate improvement to your reports and scores (most people and lenders perceive a zero balance more positively than one that’s outstanding), or twiddle your thumbs and wait until it drops off naturally.