Larry writes:
Hi, do things fall off credit report after so many years?
Due to your knowledge I was hoping you may be able to shed some light on the subject. Would you consider giving me a couple pointers?
Sajeev replies:
This website prides itself on keeping the manufacturers honest on their business practices, so why not turn the spotlight on our personal finances? That said, my credit is quite good: I “credit” (get it?) my parents for warning me at an early age.
But I helped a friend with less-than-stellar credit buy a new car. Thanks to a shockingly professional sales/finance team at a local dealership, we saw her credit report and got a good dose of common sense, free of charge. The short answer? The Fair Credit Reporting Act requires the big credit reporting agencies (Experian, TransUnion, and Equifax) to remove boo-boos from your record after seven years.
My pointers? First, get a copy of your credit reports, avoiding the websites that charge you for their idiotic TV ads about some loser in a pirate hat, driving a Geo Metro. This information is available FREE to you, no strings attached thanks to our government in action.
With those reports, you’ll know your credit blemishes and can do something about it. See which blemishes are flat-out errors: engage the other parties, offer up proof, do whatever it takes. After that, it’s time to fix your mistakes: do the Earl Hickey thing and do right by karma. Pay the piper!
Unpaid bills and the associated bad karma? Call them up, negotiate a fair price to make things right and watch your credit score shoot through the roof. Always grab the lowest hanging fruit first: nobody cares about your long-term college loans—that unpaid trip to the VD clinic, errant cell phone bill and multiple credit card balances are the real killers.
And finally, don’t make the same mistake again. Ever: cars get faster, cooler and smarter every year. And you should be in the driver’s seat, if you so choose. So spend your money wisely, otherwise you’re in for even more trouble in the future.
But feel free to live debt free(ish) and drive a crap can car, just like many of your fellow Piston Slappers. We do aah-ite!
(Send your queries to mehta@ttac.com)
Excellent advice, Sajeev.
http://www.annualcreditreport.com
http://www.ftc.gov/freereports
I also get a credit monitoring service through AmEx to be on the safe side and mainly so I can keep a close eye on my credit reports daily if I choose. Is it a waste of money? Perhaps, but I’d rather catch an identity theft issue asap than a year down the road.
That being said, those credit reports are often horribly outdated. One of the agencies says my current employer is a place I worked at over 10 years ago, and it was my first ever real job.
You must remain vigilant in defending any wrong info pertaining to your credit history. They make it hard on you, so beware.
Having great credit is easy: Never co-sign for anyone else and PAY YOUR BILLS.
3 years ago I quit my job, had the brilliant idea to buy a 2nd house to fix up and flip. I got a liar loan, and used my credit cards to fund the flip and cover my expenses. Even though I got up to $80k in credit card debt (including the even more hairbrained scheme to buy an Ariel Atom on credit at the same time!), through proper planning and expert credit card cash advance flipping I never missed one payment on any bill.
Money management should be a required course in high school. But of course, if we did that, then kids would know how badly our government is screwing them.
In the world of credit reporting, the reality is far different than people think. The loopholes and abuses make it so. Some points:
The life of a negative trade line is actually 7.5 years. 7 year clock doesn’t start until 6 months after you went delinquent.
Even the 7 year life won’t protect you from unscrupulious collection agencies. There are companies that buy old debts for pennies. Then they put a watch on your credit report. When you then start shopping for a mortgage, car loan, etc, they inject a negative trade on your report. It is actually illegal, but they do it anyways. Then when you are turned down and discover the “problem”, you have to take the time consuming task of fighting them to remove it. They are betting that you will rather pay them something to go away than wait the months it takes the agency to confirm that the information is invalid.
The government doesn’t do squat about it, and when they do, the company simple pays a small fine, or declares BK and reopens under a new name. Sometimes you have to sue the company to get them to stop trying to collect an uncollectible debt, and you have to sue the credit reporting agency to get them to do what the law requires. So be prepared to sue both parties in federal court as allowed in the FCRA.
On the other side of the coin there are people and companies that claim to be able to clean up your credit, for a fee. All they do is abuse the dispute system by telling the CRA that the debt isn’t yours. The CRA is required by the FCRA to remove the trade until it can be verified. Sometimes this works long enough for you to get a cleaner report for a short time. But the negative items come back as soon as they are authenticated. And the CRA’s are getting pretty fast at authenticating when someone uses one of these services.
Also, the life of negative item depends on the item. Chapter 7 BK is 10 years. Actually, BK is for life. They can report your BK forever if you are applying for a job that pays more than $50k a year, life insurance, security clearance, and a number of other reasons.
In some states, collection judgments can end up on your report for your effective lifetime. In California, an uncollected judgement can renewed for up to 60 years. So each time it is renewed, it shows up on your report. So all a creditor has to do is sue you, win, and then just file a renewal with the court to keep it on your credit report (unless a BK kills the judgement).
I can go on with more ugliness. But welcome the the strange dark world of credit reporting.
Beware of unpaid parking tickets. Some cities (e.g. Denver) are putting them on credit reports.
Twotone
There’s nothing dark about it if it’s true. Pay what you owe.
But mistakes do crop up occasionally. Among other things, make sure that all the credit bureaus know that accounts you’ve closed are closed (and at your request). That’s one that frequently can be missed, and it can affect how much credit someone will be willing to extend you.
http://www.quizzle.com is excellent for personal finance
Lenders are much more concerned with your ability to pay and your current payment history than something that happened a long time ago, whether or not it is still on the report.
Don’t cancel credit cards, do pay them down, do not open new credit cards, and watch how many people pull your credit (even having your credit checked hurts your credit).
http://articles.moneycentral.msn.com/Banking/YourCreditRating/7FastFixesForYourCreditScore.aspx?
And yeah, unless you want to prove the rest of the world right about stupid Americans use annualcreditreport.com, not freecreditreport.com.
Another handy tip.. Read those letters that you get saying that “your credit card # was compromised”.
Many times they have a code buried in page 12 for a free year of credit monitoring / access to credit reports.
This whole notion that credit plays such an important roll in people’s lives is complete hogwash. If you don’t have the money to buy something then don’t buy it. If you can’t afford to purchase a new car straight up then maybe you should buy a used car. And if you can’t afford a used car then take the bus until you saved up enough money.
The best advice you can give a person is to never go into debt in the first place unless it’s to buy a house for your family and the mortgage payments would be less than what you would otherwise pay in rent.
RGS920:
+1
re: RGS920:
You are completely right about credit. Bad loans got us into this mess, but now the financial industry has convinced politicians on both sides that bad loans will get us out of it.
Uneducated working people used to live on what they earned, because loan sharking used to be illegal.
Loan sharking was legalized, through the Supreme Courts removal of interest rate caps on credit cards, through creative mortgages and cash out refinancing, and through pay-day loans.
For the last 20 years uneducated working people simply borrowed money instead of organizing and demanding higher pay (or getting educated), because borrowing money was easier, and now everyone is paying the price for that.
The only thing you are wrong about is mortgages. An honest, 30-year fixed rate mortgage with escrow is never going to be cheaper than renting a similar property.
If a mortgage is cheaper than renting then it is most likely an ARM, pay-option ARM or negative equity loan that nobody should use.
Of course if one cannot afford to comfortably buy a house with an honest mortgage 30-year (or less) FIXED RATE mortgage then he shouldn’t buy it.
I spent 3 years approving and rejecting people at Ford Credit. And yes, 7 years things fall off the bureau – 7 years after closing. So if you have a credit card with bad history, cancel it, get a new one and pay the new one on time every month. 7-yrs down the road that old slow credit card will disappear. Bankruptcies fall off in 7-years too – unless you go bankrupt a 2nd time!
Uneducated working people used to live on what they earned, because loan sharking used to be illegal.
What sort of fantasy world do you live in? Uneducated working people used to go to illegal loan sharks, pawn shops, or buy things on “lawaway” for effectively ruinous interest rates.
You might as well say, “Uneducated working people used to live sober, because alcohol used to be illegal.”
Well, at least we know that all uneducated working people don’t do drugs, since those are illegal.
re: johnthacker:
It’s a generalization.
Yes, some people used illegal loan sharks, that is how society came up with the term “loan shark”.
But people did not use loan sharks nearly as much as people now use credit cards, cash out refinancing and pay-day loans. People that would never do anything illegal have seriously screwed themselves with bad legal loans.
And illegal loan sharks couldn’t sell ARMS, pay option arms, negative amortization loans and liars loans to put people into houses and then destroy neighborhoods and send the economy into recession with foreclosures. Illegal loan sharks made small loans, they couldn’t manipulate the housing market.
I’m pretty sure illegal loan sharks never caused an economic collapse. Legal ones just did.
Using your “just because it’s illegal doesn’t mean some people don’t still do it” line of logic heroin should be legalized, oh yeah, and murder and every other crime, because people do it anyway. Brilliant.
no_slushbox,
The thing you forgot about mortgages is the mortgage interest deduction. When you add that in equation, a good, 30 year fixed interest mortgage is indeed cheaper than renting. Especially at the low rates now prevalent. Although, as interest rates rise for the owner, rent goes up too. Think about it, if the owner can’t rent out the residence for more than it is costing him to finance his purchase of it, no would buy homes and rent them out. Plus, as long as you take proper care of your home, most of the time you end up eventually selling it for more than you bought it for. Not so much right at present, but still….. Renters end up with nothing but receipts after twenty years of renting the same place.
re: njdave:
I wasn’t saying not to buy a house. I was just saying that, becuase of the reasons you mentioned, mortgage interest deduction (and I would add property tax deduction) and relatively certain long term appreciation, a person is almost never able buy a house with a 30 year fixed rate mortgage for less per month (before deductions) than renting a similar house.
Someone before me said that people should not buy houses unless their mortgage would be less than renting, and I was correcting that.
Now would appear to be a rather good time to buy in most markets, with a 30 year fixed rate mortgage, especially for those who qualify for the $8,000 tax credit for new (or haven’t owned within the last 3 years) buyers.
WTF department.
How did an ostensibly technical section get involved in credit arguments?
Must have been a slow day.
Some of the other topics that have been published here are way off the stated mission as well!
The general rule of renting vs. buying is if you plan on staying in the same place 5+ years then you should buy. Obviously there are a lot of variables that go into this and the NYT’s website actually has a fairly good rent vs. buy calculator which just gives you the length of time depending on your circumstances where it’s cheaper to buy. The whole “renting is throwing your money away” is part of the mentality that got us into this mess
I’ve never understood all the excitement about credit ratings.
I’m self-employed, dealing mostly in cash. I rent, because I never wanted to be burdened with a house. I drive old Corollas, which I buy with cash every ten years or so. And every eight years I file for chapter 7. 18 months after filing I usually have a ton of credit cards. Right now I am four years post-filing and I have eight cards with available cash advances totaling $14000. In a couple of years, unless credit totally collapses (which is likely to happen) I’ll have ten or more cards and access to over $50K in cash.
In 2004, I pulled $45K in cash from my cards, and charged the rest of my available balances on grocery and hardware gift cards. I serviced the debt for the “look back period” with some of the cash advance, then filed for 7. It went through, cost $700, effortlessly. Total haul: $62K. It was the third time I had done that. I’m still using the grocery cards.
In 2012, unless the aliens kill us, and all money is toast, I’ll do it again. This has been a solid addition to my income for my whole life. All my “real” assets are in boxes of cash, or hidden by relatives among their assets.
I’ll bet my “boxes of cash” outperformed your 401Ks over the last ten years, too. If it helps you feel better, I pay taxes on only about 20% of my income too (cash, remember?) – and sometimes I get food stamps.
Spendthrift:
I would rather have boxes of silver and gold than cash, but to each his own.
Obviously you are gaming the system and stealing from large corporations who then recoup that money from employees (lower pay/benefits), investors and others who use their services.
I use one credit card, pay it off nearly every month (maybe I pay $50 in total interest over year) and I don’t work for the credit card industry, so your not stealing all that much from me, but karma can be a bitch so take care.
philbailey : WTF department. How did an ostensibly technical section get involved in credit arguments?
It got published mostly because it landed in my inbox. Secondly, it has an indirect correlation to whether or not people buy a new car or keep their crapwagon.
I also occasionally publish spam emails too, so take it FWIW.
Regarding renting rather than buying: Outside of areas where emotion caused people to pay more than they should have for a home, I know of no one who pays less renting rather than buying for comparable square footage and neighborhood. Also, the fixed rate mortgage is just that – fixed. Rent goes up every year, especially when a lot of buyers lost their homes and are now renting. Finally, unless you are a values-challenged leech like Spendthrift, you can work on your own property to increase its value.
dmrdano:
Renting vs. buying depends on many variables.
I like this calculator, especially the advanced settings.
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1&ref=patrick.net
Also, check you CLUE Report. Its for auto insurance.