Long-forgotten past due bills often come back to haunt many couples because credit cards, loans and low-cost insurance plans are hard to obtain if you have bad credit. You can deal with your delinquent debts by entering into a settlement with your creditors. Settling a debt and having it removed from your credit report, however, are two entirely different things.
Credit Reports
Laws in the United States enable your creditors to make regular reports to the three major credit reporting bureaus: Equifax, Experian and TransUnion. Legally, these entities may keep the information that your creditors provide on your report for up to seven years. Even if you eventually pay your debt, the record of the number of times you fell 30, 60, 90 or 120 days behind on your payments will remain on your report for seven years. Also, past due bills are listed as derogatory items on your report and settling one of these debts simply results in the status changing from "past due" to "settled." Regardless of the status, the debt may remain on the report for seven years.
Settlement
Many consumers use the terms paid and settled interchangeably when talking about paying off debts. In the credit world, these two seemingly similar words have very different meanings. Paid means that you borrowed some money and repaid it in full. Settled means that you failed to repay the debt but reached some kind of compromise with your lender whereby you agreed to repay a portion of the past due balance. Creditors regard settled accounts as red flags and a sign that you cannot handle your finances responsibly. Consequently, laws enabling credit bureaus to keep settled items on your credit report are specifically designed to protect the interests of lenders.
Score
Credit scores are complex and while you cannot erase a settled debt you can take steps to reduce its impact on your life. Positive credit activity such as paying your car loan on time or keeping balances on your credit cards to a manageable level can have a positive impact on your score. Credit experts recommend keeping card balances below about 35 percent of your available credit. Additionally, recent credit activity has more of an impact on your score than past history, which means that your settled debt gradually becomes less meaningful as the years go by.
Errors
Credit bureaus gather vast amounts of information directly from your creditors but also from third parties, such as debt collectors and public records departments at local court houses. Occasionally, errors occur and unpaid or settled debts are listed on the wrong credit report. In such instances, you must contact the creditors in question and ask them to rectify the mistake. If they refuse to cooperate you can contact the credit bureaus directly and contest the faulty information. The bureaus are legally obliged to investigate and must remove items from your credit report if the party that reported the item cannot substantiate it. Managing your own bills can prove tricky enough without allowing other people's bad debts to ruin your credit score.
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