This post originally appeared May 12, 2016 on CreditCards.com as “Some states offer exceptions to credit reporting rules”
By Barry Paperno
Dear Speaking of Credit,
Is New York the only state that keeps negative items on your credit file for seven years? Is there any current legislation pending to change this? Second question: I filed for Chapter 7 bankruptcy about eight years ago, but before it went through I changed my mind and didn’t actually go through with it.
I received papers from the court stating “bankruptcy dismissed.” This shows up on my credit reports as “bankruptcy dismissed,” which frankly is just as bad as going through the bankruptcy in the first place. I’ve been trying for the past eight years to have this item removed, and finally only one bureau took it off my profile. If I didn’t actually go through with it and continued to pay my creditors, why is it so difficult to have this item removed. It’s like false advertisement on my credit! I’m innocent! – Marie
No, New York isn’t the only state that keeps (most) negative items on your credit file for seven years. The overriding set of rules that establish how long negative credit bureau information can remain on your credit file comes from a federal law applying to all states, which regulates credit reporting across the U.S.: The Fair Credit Reporting Act (FCRA), enacted in 1970, and later amended by the Fair and Accurate Credit and Transactions Act (FACTA) in 2003.
While the FCRA limits on credit reporting cannot be exceeded, some states have passed laws putting tighter restrictions on the length of time credit bureaus can continue to report certain types of information. For example:
- New York law requires that paid (satisfied) civil judgments be removed from credit reports within five years of the filing date – the FCRA allows them to be reported for up to seven years.
- New York law also requires that paid collections be removed within five years of the date paid – again, the FCRA specifies a maximum of seven years.
- California law puts a limit on the reporting of paid (released) tax liens at seven years from the date paid and 10 years from the filing date, paid or unpaid. The FCRA does not restrict the length of time unpaid tax liens can be reported and, for paid liens, allows seven years from the date paid.
To your question about any pending credit reporting-related legislation, there could be good news for New Yorkers with credit reports showing medical debt that’s either been paid or is being paid through insurance. A March 2015 settlement between the New York Attorney General and the big three US credit bureaus – Equifax, Experian and TransUnion – provides for some major credit reporting changes, such as:
- 180-day waiting period before reporting medical debt. To allow time for insurance and other means of payment to run their course, a medical debt must be past-due for a full 180 days before it can appear on a credit report.
- Removal of medical debt from credit reports. Credit reports can no longer show medical debt that’s been paid in full or is being paid by insurance.
- Credit reports can only include debt resulting from a contract or agreement to pay. No longer will collection agencies and debt buyers be able to report debts resulting from traffic tickets, library fees, government fines or any other debt not previously agreed to.
Addressing your dismissed bankruptcy, you might rightfully think that when a bankruptcy is dismissed and the debts are not eliminated it’s a case of no harm, no foul. Yet regardless of any changes in the status or outcome following a public record filing, it is extremely difficult to have that public record item – bankruptcy, tax lien, judgment – removed from your credit report, as long as it belongs to you and the filing date falls within its legal expiration date. A couple of reasons for this stubbornness by the credit bureaus include:
- Creditors who rely on the use of credit reports in their credit decision-making processes consider this kind of information valuable.
- Research conducted by credit scoring companies, such as FICO, has found this kind of data to be highly predictive of how a consumer is likely to pay future debts.
And speaking of credit scores, your comment that having dismissed the bankruptcy is “just as bad as going through the bankruptcy in the first place” is not only accurate, but for your score, it’s often worse. Here’s why:
Discharged bankruptcy. For credit accounts with balances discharged, essentially eliminated, through bankruptcy, the consumer’s credit report shows a balance of $0 for those accounts. As a result, those debts are no longer included in the credit utilization (balance/limit ratio) and other debt-measuring scoring calculations that had been hurting the score before the discharge – a plus for the score.
Dismissed bankruptcy. Following dismissal of the bankruptcy, where the debt continues to be owed, these amounts continue to be considered by the score to its detriment. Additionally, any of these debts not already assigned to a collection agency or the subject of legal action can be fair game for such consequences that can increase the debt and lower the score even further.
There could be a light at the end of this tunnel, however, and you may be closer to seeing it than you might think. Since most negative information is removed after seven years and it’s been eight years since the bankruptcy filing, much of the negative credit history leading up to it is likely to have already fallen off your credit reports by now. The bankruptcy-dismissed notice will appear for only a few more years, and because of its age has already lost some of its sting. If you’ve established some positive credit in recent years, your credit score could already be on the upswing.