About 43 percent of Americans spent more than they made in 2004, according to the MSN website, and the average American family had about $8,000 in credit card debt that year. Other debts include student loans or personal loans from banks or individuals. "Old" debt typically refers to charged off debts, which are debts not paid before being written off by the creditor and often sent to collection agencies. The charged off debt appears on your credit report twice: The original debt to the creditor and the new charged off debt to the collection agency both show up on your credit report, according to MSN.
Check Your Credit Score
The first step in improving your credit score is to check your credit report. Your credit report shows your current credit status, and it indicates which accounts are delinquent or past due and which are negatively affecting your overall credit score. It also may remind you of a debt you had forgotten that is becoming more delinquent each month. You can obtain a free copy of your credit report every year through the AnnualCreditReport.com website. A score above 660 is considered a good score, according to the Moolanomy website, although it may depend on the type of credit you are seeking.
Statute of Limitations
It is beneficial to pay off a charged off debt, because your credit report will no longer indicate that it is in collections. However, by law, creditors can only take legal action in collecting a debt for a certain amount of time. This policy is known as the statute of limitations. Statute of limitations vary by states, and it can be anywhere from three years to 15 years before creditors can no longer take legal action to collect debts. However, even after the statute of limitations for a debt expires, the debt still shows up on your credit report as unpaid in many cases, because a charge-off remains on your report for seven years, which negatively affects your score.
Make Payments
Missed or late payments hurt your credit score. Past due bills or high balances on credit cards or other debt also hurt your credit score. Therefore, it is beneficial to pay down old credit card debt and catch up on any late or missed payments. Once payments on accounts are current and debt is reduced, your credit score will improve. You should start with the accounts that are most delinquent, then focus on paying down balances that are near your credit limit or have the highest interest rate.
Settling Debt
Sometimes you can negotiate with a credit card company or other lender to reach an agreement to pay less than you owe. This is called a settlement. While settlements might help you get out of debt faster, they can hurt your credit score, because they add a new element to the debt on your credit report. It updates the debt, making the delinquency more recent, which hurts your score. However, once the debt is paid off and the creditor reports the debt as paid in full, that reflects positively on your score.
Good Debt
Some debt, such as mortgages or investments, can be helpful. "Good" debt essentially earns you regular returns, even though you may pay interest. "Bad" debt, such as credit card debt, costs you money on high interest payments and zero return. Good debt has less impact on your credit score as long as you make timely payments. You can carry a mortgage for 30 years, but a smaller credit card debt will hurt your credit score more, because it is bad debt. Therefore, focus on paying off your bad debt first to improve your credit score.
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