Report updates don’t restart clock on negative credit marks
Dear Liz: I co-signed a lease agreement for a friend in 2006. The friend flaked on the lease a few months later, so this debt is on my credit report. Everything I’ve read about credit reporting says it should fall off my credit report in seven years. But every few months the collection agency updates my credit report because they are adding interest onto the collection amount, which then updates the date of last activity as well. Does this restart the clock on how long the debt can be reported? Or is it still considered from when the account first was delinquent? I had contact with them a few years ago, trying to negotiate a settlement to clear my credit report, but we never agreed upon an amount and I never acknowledged that this was my debt. I’ve been trying to buy my first home for two years, and this has been the one thing holding me back, causing a lot of heartache, so I’m trying to be as informed as I can about it.
Answer: The clock on reporting most negative marks begins when the account first goes delinquent and isn’t reset when a creditor or collection agency updates or sells the debt. If the collection agency continues to report the debt after seven years and 180 days passes, you should be able to dispute the entry with the credit bureaus and get it removed from your credit reports.
You also may need to be concerned about your state’s statute of limitations for this debt. This statute affects how long you can be sued over a debt, which can vary from three to 15 years. In some states, the statute can be extended if you make a payment on the debt or even acknowledge it as your own.
If you’re at risk of being sued, you may want an attorney’s advice about how to proceed and whether you should try to settle this account. You can get a referral from the National Assn. of Consumer Advocates at https://www.naca.net. Even if you aren’t at risk of a lawsuit, it could pay to get this debt resolved. As you’ve learned, mortgage lenders typically aren’t willing to lend money to people with open collection accounts on their reports.
Cellphone insurance usually isn’t worth it
Dear Liz: I read an article in which you recommended getting rid of cellphone insurance. Why? I thought that the insurance would be beneficial if something should happen to my phone.
Answer: You shouldn’t use insurance to cover costs that you easily could pay out of pocket. And if you couldn’t afford to replace your phone out of pocket, you’re spending too much on your phone.
Insurance is best used to protect against catastrophic expenses, not minor costs. When you use insurance to cover incidental expenses, you typically pay too much for the coverage — and that’s particularly true for cellphone insurance, which is ridiculously expensive for the protection you get. Plus, cellphone coverage is notorious for loopholes and exclusions that make it tough to make a claim should your phone be lost, stolen or destroyed.
Get expert to help choose pension plan
Dear Liz: My husband is planning to retire this summer after 30 years as a teacher. He is 55, I am 56, and I do not plan to retire until I’m 66. He has to choose among several options for his pension: getting the maximum benefit, which ends when he dies; choosing a reduced amount that continues 100% to me when he dies; choosing a less-reduced amount that offers a 50% payment to me when he dies; or a reduced benefit that’s guaranteed to continue a certain number of months if he dies or increases if I die first. We can’t decide what’s best for us. Can you help?
Answer: Not really, but an experienced fee-only financial planner can.
Choosing a pension payout option is tricky, because you’ll be living with the consequences of this decision for the rest of your life. You want to discuss this with a professional who can review your entire financial situation and give you individualized advice. This person should be someone who is committed to putting your interests first, rather than his or her own. You can get referrals to fee-only financial planners from Garrett Planning Network at https://www.garrettplanningnetwork.com.
Liz Weston is the author of “The 10 Commandments of Money: Survive and Thrive in the New Economy.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via asklizweston.com. Distributed by No More Red Inc.
