One step anyone looking to try their hand at credit repair invariably thinks to take is to gather all of their bills and outstanding debts in order and work up a plan to start paying them off. But before you start flipping through your little black book of creditors, you might want to think about the effect those phone calls could have on your credit score.
What do you mean? Won’t paying off my old debts help my credit?
For the most part, yes, paying down your old debts will help your credit rating in the long run. However, if you find yourself looking to pay off your lenders – whether for your own debt relief purposes or because you want to stop those annoying collection agency calls – you should first check to see just how old those old debts really are. If they’re past your state’s Statute of Limitations, you may not even have to worry about them at all.
How does that work?
Say you’re one of the thousands of Americans who’s currently playing phone-tag with a debt collection agency. They won’t stop calling you for some unpaid video rental fees from 10 years ago, of all things, and you’re so sick of them calling during Iron Chef that you quickly agree to any sort of repayment plan they throw at you just to get them off the phone. Finally, you think to yourself, now they’ll stop calling you every damn night and you’ve set up a sensible plan to pay that debt off.
What you probably don’t realize is, you’ve done more than set up a repayment plan – you woke up the dragon.
Hope you brought a suit of armor….
Or at the very least, a lot of sun-block. You see, when you agree to take on payments for a debt, no matter how old or new it may be, you could have effectively reset the clock on that debt’s age. Now, an old debt that might’ve fallen off your report on its own in a few months time (depending on your state’s SOL; we’ll get to that in a sec) has suddenly been awakened and revived, giving your debt collectors that much more power over you.
Reviving the debt
As we’ve seen before, up to 10% of your FICO credit score is attributed to new credit. However, if you have any open credit card accounts on your credit history that haven’t seen any activity in some time (this includes charging anything to it or paying the bill for it), they’ll begin to lose that “new account” smell and will start to lose importance.
The minute you step in to make a payment or charge anything to that card, you could reset the clock on it back to zero. While this won’t make the account as good as new, it could switch it back to an active listing. And while this might make sense if you already planned on using the card again anyway, if your aim is to get the account off your report entirely, then it would probably be best to let sleeping dragons lie.
Sorry, bud, you’re SOL
So how can you tell which of your debts needs to be given more priority? Refer to your state’s Statute of Limitations on debt collections. The statute varies state-to-state, and by the type of account too (written or oral agreements),so check carefully to see if the account you may be looking to pay off really needs your attention in the first place.
So if you’re awesome like me and you live in California, for example, and the debt is older than 4 years – meaning you’ve not made a payment to it or added to it in any way – then the collection agency that is after you for the payment cannot take legal action against you.
Of course, you’ll want to tread lightly when it comes to settling old debts, lest you awaken that sleeping dragon and come out a bit singed. If you need a more step-by-step, hands-on approach by real experts, give one of our credit repair specialists a call today.
