When you pull your credit report, there's a good chance that you might find old debts tucked away. Some of these might be so old that you've totally forgotten about them. The rule of thumb is that old debts fall off of your credit report after seven years. However, it's often not as simple as that. Put simply, there might not be any benefit to your credit score whatsoever by paying off really old debts.
The Two-Year Rule
Though Mike Sullivan, director of education with Take Charge America, says that "you can't just say that in 26 months it doesn't matter," he is quick to point out that "each month, the significance decreases." This is particularly true when debts become older than two years.
"Once you get to the charge-off stage, the worst impact is done," he says. "Every month after that, the old debts mean less and less."
He notes that if you're just looking at your credit report from a purely credit score point of view, there are two reasons to pay off an old debt: first, you want to avoid legal action from the creditor that might result in further damage to your credit score, and second, you want to avoid legal action that could result in a levied bank account or garnished wages. Sullivan also notes that you can negotiate a deletion in many cases. "It's not going to make a huge difference," he says. "But it will be helpful. Many collection agencies are very receptive to the idea and will act like it never happened." So if you're going to pay off an old debt, try to get it removed permanently.
Sullivan says that part of this depends on what your credit rating looks like right now. "If you have a good rating in spite of the delinquency, you might see a little bit of a bump," he says.
The Statute of Limitations...