What Do You Mean I Still Owe That Money

If you have an outstanding bill and you think the creditors will write it off, think again. Now, you’re probably thinking, “But that bill is six years old!” It doesn’t matter; there is no Statute of Limitations when it comes to credit card bills. What can you do? Here are some suggestions in case you've found a bill that you’ve haven’t paid in years.

If a lender doesn’t receive payment within six months, they will most likely write it off their books. The terms used by companies who do not receive payment of an outstanding bill is called a charge-off. While the term may sound as if the company will forget that the bill is due, in reality it means that (1) it will appear on your credit report as a charge-off, and (2) it will be listed on your report as "in collection". They will also likely the debt over to a collection agency. That thump you just heard is your FICO score take a tumble down the proverbial rung of a ladder.

Now, there is some good news. If you pay off a bill that is more than six years old, and the creditor has rendered the bill as a charge-off, there may be ample time to ask the creditor to note the balance has been paid, thus leaving you with a zero balance on the credit report.

On the downside, however, if a collection agency has taken over the payment of the bill and you have paid the bill to the collection agency, it will have an adverse affect on your FICO score. It should be noted here that with regard to the FICO score, it is the report by the creditor that carries the most weight and not the collection agency.

Here’s an example of what could happen if you do not pay off that six-year-old bill. Let’s assume you wish to buy a new car. Your credit report is checked and it indicates there is an open collection. The auto dealer will require you to pay off the debt before you can proceed with the car loan. But, since you haven’t paid the bill for six years, your credit report will show a negative mark for that particular bill. This mark can remain on your report for seven and a half years from the time the bill first became delinquent. It’s a catch-22 situation.

Now there are some who theorize that not paying the bill would be beneficial. How? Some suggest that having a bad mark on the report for seven and a half years is acceptable and after the mark has been removed, experts assert the credit score may increase. There is no guarantee that it would, however. The flip-side to this debate is that FICO scores tend to drop if a bill has never been paid. Again, how the FICO score is determined can make the difference in the point spread.

The bottom line is to ensure that bills are paid on time. If one bill “gets away from you”, make sure that you pay it immediately and/or contact the creditor to make arrangements for payment so they can give a positive report to the credit bureaus. Finally, check your credit report annually.