Will Your Credit Score Recover If You Don’t Pay an Old Debt?

July 2nd, 2014 | Author:

[I]t’s much easier to get in financial trouble than you think. You get numerous offers for credit cards that you apply for and get approved. You start to use them and even think “I’ll pay it off when it comes due.” You continue to spend and rack up more debt that you can’t pay. And then you default.

If this has happened to you, you’re not alone. Many people end up with debt that they didn’t mean to incur and now can’t afford to pay. They may learn from their mistakes and become more responsible in the future. However, they may also find they can’t afford to pay those old bills. So, what happens if you never pay them?

Statute of Limitations

You certainly don’t want to get into new debt by using all of your money to pay off old debt and not having enough for current responsibilities. That being said, old debt is going to continue hanging over your head. However, there is a limit of time when it can hurt you.

First, every state has its own statute of limitations for when a creditor can sue you for money owed. Once that time has passed, there is no legal action that can be taken. That doesn’t mean that you won’t hear from them again. In fact, as long as they don’t violate the Fair Debt Collection Practices Act, they can continue to contact you as long as they want.

Credit Reports and Old Debts

Old outstanding debts can also be reported on your credit reports for several years. Generally, this is for 7 ½ years from the time of delinquency. However, as the negative information gets older, it has less of an impact on your credit score. The first two years is when it does the most damage. You also have the danger that the account will be sold and a new creditor will report to the credit bureaus. This will appear as a new account that could hurt your credit score.

Should You Pay?

It’s always a good idea to pay your old debts if you can afford to. If for no other reason, it will give you peace of mind. But it can also show creditors that you have learned from past mistakes and will be responsible with credit now and in the future.

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