“John, I’ve been reading your articles for a while. You often talk about how the credit bureaus can’t report bad stuff for more than 7 or 10 years.
I have the same question but from a different angle. Are they required to report bad stuff for 7 to 10 years or is that just the maximum amount of time they CAN report it?
Taking that one step further, are the credit bureaus required to report anything at all?”
That’s an interesting question because the 7/10 year practice is really the confluence of two things…Federal law and credit bureau policies.
The Fair Credit Reporting Act limits how long derogatory information can remain on your credit reports. The fact that it actually remains that long is a matter of the credit bureaus’ policies.
The world of credit reporting is largely a voluntary one.
There are no laws that require lenders to report your accounts to the credit bureaus. There are no laws that require a lender to report to all three credit bureaus, if they choose to report to any of them.
There are no laws that require lenders to report to Experian over Equifax or Equifax or TransUnion, etc. It’s 100% voluntary.
Further, there are no laws that require the credit bureaus to accept information from any lender. There are no laws that require the credit bureaus to accept anything from a collection agency.
And finally, there are no laws that require the credit bureaus to NOT pull public records, like bankruptcies, liens and judgments.
Lenders cannot force the credit bureaus to accept their information. Collection agencies cannot force the credit bureaus to accept their information.
And, lenders cannot force the credit bureaus to sell them credit reports and credit scores.
No Shoes, No Shirt, No Dice
Remember this line, “No Shoes, No Shirt, No Dice?” That’s how it works in credit reporting…the credit bureaus can choose with whom they do business.
While the Fair Credit Reporting Act limits the amount of time bad information can be maintained by the credit bureaus, it does not force the bureaus to report bad information for the maximum time allowable.
So, a collection can remain on your credit reports for up to 7 years from the date the original account went into default.
But, the credit bureaus could choose to remove collections after 5 years or after 3 years.
Why Lenders Probably Won’t Change Their Reporting Policies
Having said that, it’s unlikely the credit bureaus would choose to change their own reporting policies and remove negative information years early like in my example.
Lenders want to see derogatory information as long as they can because it helps them make decisions about your applications.
And, even very old derogatory information is still valuable in your credit scores as it tells a story about your credit risk.
Simply removing bad information years early doesn’t seem to make any sense.
But what if it’s wrong? Can’t that information be removed before it’s 7 years old?
Of course it can. Incorrect information is removed as soon as it’s has been confirmed to be incorrect.
How This Applies to RESPA
By the way, some of you real estate experts may be thinking about RESPA and how it addresses the issue of credit reporting when a mortgage loan servicer changes.
RESPA (Real Estate Settlement Procedures Act) stipulates:
“During the 60-day period beginning on the effective date of transfer of the servicing of any federally related mortgage loan, a late fee may not be imposed on the borrower with respect to any payment on such loan and no such payment may be treated as late for any other purposes, if the payment is received by the transferor servicer (rather than the transferee servicer who should properly receive payment) before the due date applicable to such payment.”
What this means, in English, is during the 60 days after your servicer has been changed your payment cannot be considered late (for credit reporting) if you actually made the payment on time but accidentally sent to the old servicer.
This is often misinterpreted as meaning that after 60 days the new mortgage loan servicer MUST report the account to the credit bureaus.
This is incorrect.
The 60-day rule simply says that credit reporting cannot occur if a payment has been made, not that credit reporting is required.
John Ulzheimer is the Credit Expert at CreditSesame.com, and a credit blogger at SmartCredit.com, Mint.com, and the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. You can follow John on Twitter here.