What is the Statute of Limitations? Statutes of Limitations: A statute setting a time limit on legal action in certain cases. How the Statute of Limitation Affect Your Credit and Finances The above definition describes in detail what the statute of limitations (SOL) is. There are many misconceptions on what this means to a consumers credit report as well as their finances.There are 2 time lines we need to address to really understand the statute of limitations. The Fair Credit Reporting Act allows for negative (and positive) information to be report against you for up to 7 years from the date the incident occurs. If the item is a Bankruptcy the information can be reported for 10 years and Tax liens can report for up to an atrocious 15 years! The statute of limitations differs from the amount of time an item can be reported on your credit report. SOL refers to the amount of time a creditor has to take legal actions against you (sue you!). The common misconception is that a collector cannot attempt to collect on a debt past the SOL - this is not true. A collection never just "goes away", a collection agency or creditor can attempt to collect on it for as long as they would like, the SOL just sets the date that they are allowed to take you to court for it. A best practice when trying to pay collections or old derogatory accounts off is to wait until you can pay them off in 1 lump sum. Making a partial payment on an account can reset the statute of limitations and give the creditor the right to press legal actions sometimes 10 - 11 years after the incident. Here are the key points to remember about Statute of Limitations: Your debt never magically disappears SOL determines how long a creditor or collection agency has to press legal actions Just because an account has passed the statute of limitations does not mean that it cannot be reported Making a partial payment resets the statute of limitations Even if an account is past the statute of limitations - you still owe the money
With all the talk about negative turns of the economy and the jobs market the question for personal credit is raised – How Important is it to Have New Credit? This is a great question, so let’s take a look at what is required for positive credit to affect your FICO score. The ratio for your credit scores consist of the 5 factors that are: 35%: Credit History 30%: Balances (or Debt Ratio) 15%: Length of Credit 10%: New Credit 10%: Types of Credit Used (or Mix of Credit) When consideration whether or not you need to establish credit there are several of the Factors that you must first take into consideration, not just one. If you have positive open credit you may not need to apply for new credit, to affect the Mix of Credit Factor we have found that you need about 1 to 1.5 revolving lines of credit to every 1 installment loan. If you get heavy either on either side of this equation it will offset you FICO score to reflect a higher risk. If you have had a negative payment history and have not established new credit you will want to take the step to re-establish a positive credit history. This step alone can affect 4 of the 5 Credit Factors in a positive way. Re-establishing credit and leaving a low balance will have a very good affect on your FICO scores and it highly recommended. Bottom line is that if you establish new credit your FICO score will more than likely decrease while you are establishing a payment history for this account. We have found that an installment loan will have more of a drastic affect for a longer period of time (due to Debt Ratio) where this factor can be controlled with an installment loan.
In this weeks Credit Corner we address dealing with Tax Liens and some of the changes that have taken place over the last year. The form needed to complete this process is in the link below. Please feel free to leave your comments! Tax Lien Form