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Why Does Negative Info Stay on Credit Reports for 7 Years?

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Under the Fair Credit Reporting Act, most negative information can be reported on credit reports for seven years. Why seven? Why not five, or 10 or some other amount of time?

I began to ponder that question after Congresswoman Maxine Waters proposed that negative information be deleted from credit reports after four years. She pointed out that other countries limit reporting to shorter periods of time. In Sweden, it’s three years and in Germany it is four, for example.

For someone who has experienced credit problems, seven years can seem like an eternity. During that time, you may feel like a prisoner of your credit rating; turned down for credit or charged more when you are approved, or even denied a job due to that information. (Under federal law, you can find out what’s in your credit report for free once a year, and you can get your free credit score updated monthly from Credit.com.)

Unraveling the Mystery

Hunting down the origins of the seven-year reporting period turned out to be more difficult than I expected. After all, the Fair Credit Reporting Act was enacted in 1970, some 44 years ago.

Querying many of the consumer credit experts I have worked with over the years, I heard a variety of answers ranging from, “I have no idea” (the most common answer), to a more colorful response about legislators pulling it from somewhere other than thin air.

Several people suggested a biblical connection. For example, Rod Griffin, director of public education for Experian, speculated that the seven-year period came from a passage in Deuteronomy that mandated forgiveness of debts every seven years.

David Robertson, publisher of The Nilson Report, who has been following the credit industry for decades, suggested it started at the state level. It “became something that went from one state to another state,” he said.

That’s not a bad theory, and state laws may have in fact influenced the federal legislation, even if indirectly. Consumer bankruptcy attorney Eugene Melchionne, who worked for a credit bureau before it was computerized, wrote in an email that when he first heard of the FCRA, he figured the reporting period had to do with the state statute of limitations. In Connecticut, where he practices, it is “six years from the date of last payment or the execution of the contract whichever is later (for written contracts),” he wrote. “I just assumed that the seven years allowed for sufficient time to allow the SOL to pass.” But that theory went out the window when he learned that the statute of limitations may be longer or shorter in other states.

Finally, a congressional staffer was able to fill me in on the legislative history:

When Congress originally considered the Fair Credit Reporting Act in the 1960s, it appears as though the permissible time periods for removing adverse information originated as a compromise between the differing House and Senate positions. The House considered limiting the time period to three, seven or 14 years. The Senate, however, proposed a more general standard of a “reasonable period of time.”

According to the Congressional Reporting Service, some consumer advocates argued that the “reasonable” standard was too ambiguous and pointed out that the seven year time period was already being commonly used by industry at the time.

Of course that still leaves something of a question as to why seven years is considered the appropriate period of time for negative information to be reported. After all, a lot has changed since then.

“When the FCRA was passed in 1970, credit scores were not in use, loan products were limited and lending was a yes or no decision,” says Norm Magnuson, vice president of public affairs for the Consumer Data Industry Association (CDIA). “Today it’s a more nuanced approach to underwriting; risk-based pricing is the norm. What that has done is brought more consumers into the credit market.”

The Magic Number?

Not surprisingly, Magnuson cautions against shortening the reporting period. “The seven years as a predictive timeframe has withstood the test of time when it comes to balancing fairness against safety and soundness concerns. Once we start deleting information that balance is no longer there. What will the loss experience of lenders be? Will consumers overextend their credit portfolios putting them in a more untenable financial situation (and with ability to pay provisions that brings up a whole different set of concerns)? Deleting predictive data is a fundamental mistake. If this were to happen and we found that there were harms to consumers and to the economy we couldn’t go back and fix the problem. It would be too late,” he warns.

And as for the reporting periods in other countries, he says that “82% of the global credit bureaus have an obsolescence period longer than four years.”

Ultimately it appears that the seven-year reporting period came about as a result of a Congressional compromise. And changing it will take, well, an act of Congress.

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  • http://www.Credit.com/ Gerri Detweiler

    I’m not sure I understand the question you’re asking. Can you clarify?

    • Thomas

      I believe they meant whats the reasoning behind three credit bureaus?

      • http://www.Credit.com/ Gerri Detweiler

        The three credit bureaus is just how things shook out. There used to be many more, including small local and regional credit bureaus but eventually they either folded or were absorbed by what became the Big Three.

    • Chelsea

      I think he/she is referring to credit score ranges. Why are the numbers from the 300s-800s, rather than 0-100 or A-F? I’ve often wondered this myself.

  • http://www.Credit.com/ Gerri Detweiler

    Collection accounts may be reported for 7 years +180 days from the date you fell behind with the original creditor. Each account is supposed to reflect that original delinquency date. In addition, if you have multiple collection accounts for the same debt you can try disputing the older ones as duplicates and you should be able to get them removed..

    • Joe Glickman

      I’ve contacted several sources, including the FTC and CFPB asking where these regulations are in writing and nobody has been able to cite any documentation. Can you help?

      • http://www.Credit.com/ Gerri Detweiler

        Yes Joe – simply search online for the full text of the Fair Credit Reporting Act. But as I mentioned in my other comment, foreclosures are not specified in the statute.

    • Stacey DeSalvo

      I have disputed many duplicates on my credit report and they will not remove any of them because of their tactic of the (transfer/sold) account which resets timeline for collection proceess therefore making it a new listing for same account, but it must state transfer/sold otherwise it can be deleted and I also noticed when they list date opened its when they receive account in there office and or when acct was transf/sold to them.
      My argument with Transuniion, Experian, Equifax has been that your score reflects the number of accounts on your credit report either negative, collection. They tell me those duplicate accounts dont count , but on your credit report everything is list by number of accounts. So , how do I handle that argument?

      • http://www.Credit.com/ Gerri Detweiler

        These are collection accounts correct? Read the part under double jeopardy here: Why Kicking Debt Collectors Off of Your Credit Report Just Got Easier. You may want to either file a complaint with the CFPB or get a consumer law attorney involved.

        • Stacey DeSalvo

          Thank you will research is it legal for the collection agency to list a different “date opened” which in turn makes this stay on credit report longer from the original creditor “date opened” because I have some that areas much as a 5 year difference.?????

  • http://www.Credit.com/ Gerri Detweiler

    True. Unpaid judgments are tax liens can remain longer.

  • http://www.Credit.com/ Gerri Detweiler

    Thank you Teresa. I found it very interesting to research myself. And in the end there still wasn’t a completely clear answer!

  • http://www.Credit.com/ Gerri Detweiler

    You are welcome to post questions here. If it’s something you cannot post here, I can email you but I need your correct email address. The one provided on your Disqus account doesn’t work.

  • Bob undisclosed

    The whole credit rating industry is a joke. It is designed to generate revenue. Credit scores do not factor in income as an example in a credit score.

    There is no constant. Experian, TransUnion, and Equifax, all score differently.

    As for these credit scores predicting a person’s credit ability ? Just look at the housing crunch. How many people with high credit scores defaulted ?

    They should eliminate credit scores entirely. It’s a farce.

  • http://www.Credit.com/ Gerri Detweiler

    Carmela – You may be interested in this legislation: Why Medical Debt Reform Could Actually Happen Now

  • http://www.Credit.com/ Gerri Detweiler

    If negative information is reported longer than it should be and you can’t get it fixed through the dispute process then you should either consider filing a complaint with the Consumer Financial Protection Bureau or getting a consumer law attorney involved. We wrote about that in this article: A Step-By-Step Guide to Disputing Credit Report Mistakes

  • http://www.Credit.com/ Gerri Detweiler

    A creditor can report the current status of an account each month. So, for example, if someone is 30 days behind and doesn’t catch up, then each month their account will report a 30 day late. Once they catch up, that shouldn’t happen.

    In addition, negative information should not be “reset” by reporting. For example, a collection agency must report the original date of delinquency which tells the credit reporting agency when that account can no longer be reported.

    So I’m not sure what you mean by resetting information. It’s not supposed to happen, though sometimes the companies that report information do make mistakes (intentionally or not) that do affect how long information is reported. That’s why it’s important for consumers to check their reports and to dispute mistakes. Make sense?

  • http://batman-news.com Jennifer

    7 years is too long! When I was 21 years old I was in college that I was paying by my self. I had an emergency and was in the hospital I had no health insurance because I was dropped from my parents insurance and had no knowledge on how to manage or understand how insurnace, hospitals, or my credit truly worked.

    Here I am at 25 and my credit has been severly crippled and I’m unable to get a home, a car, or a loan in case of an emergency because of the damage it has done.

    • http://www.Credit.com/ Gerri Detweiler

      Make sure you share your experience with the CFPB which is looking into credit reports and medical bills.

  • Stacey DeSalvo

    Hello I sympathize with your situation, as I am currently working diligently to repair my credit. It takes many hours of letter writing patience and trips to the post office. If ever I can offer some assistance please feel free to email me with any questions, I am also currently researching and sending letters to my state representative and eventually will get a letter to Congress I would like to have the seven year old rule changed among other situations with the way the credit reporting is done. I want to help as many people as I can

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