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Credit Education > Credit Report > Effects of Statute of Limitations to Credit Worthiness

Effects of Statute of Limitations to Credit Worthiness

By Janet Lacey
Published: Friday, December 18th, 2009

There are many ways on how to get financing agreements from different companies and even individual lenders. Getting debts would mean two things for a borrower. First, it will hold the borrower accountable for his or her end of the deal. Second, the failure of the borrower to pay his or her borrowed amount will result to the lowering of his or her credit score and his credit worthiness report. There are many ways on how to be indebted, but these ways vary in many ways. The differences in the ways that they are agreed upon will determine the degree of the obligation of the borrower to the creditor and the accountability of the creditor to the borrower. Each financial agreement takes a form of a statute of limitation.

The statute of limitation defines the legal obligations of the borrowers to the creditors and vice versa. There are many forms of statute of limitation like oral contract, written contract, promissory note, and open- ended accounts. Oral contract literally means that the financial agreement was sealed through verbal communication only. This type of statute of limitation does not require any written form of agreement or physical contact like a handshake. In credit reports this statute will not be included most probably simply because credit bureaus require written and actual credit history records for their report evaluation.

Written contract is wherein both parties the lender and the borrower have agreed to sign a document to prove that there is a financial agreement between the two parties. Written contracts are part of the credit worthiness evaluation process used by the major credit bureaus. These actual documents provide proofs on the vital accounts on credit history like whether the debts have been paid on time or it has been late. The credit score and report of the borrower who entered in a written contract will be affected if he or she refuses to hold his or her end of the deal.

Promissory notes are just written contracts with an essence of time keeping. Promissory notes have clear and specific payment dates that form a calendar or schedule of payment. Mortgage for example is a type of promissory note since mortgages are paid through mortgage plans that have specific dates and amounts of payments. This type of statute of limitation is responsible for the lowering of credit scores and report through the recording of late and delinquent payments.

Lastly, open ended accounts are the statute of limitation of revolving credit accounts. A good example of this is a credit card account. Open ended accounts affect the credit scores and reports from the credit bureaus by being the most flexible type of statute of limitation. Open ended accounts require time to time computations accounting of the borrower’s outstanding balance. This computation will renew or end the years that the account needed to be opened. For example, a good paying borrower can easily get a ten year statute of limitation contract from a creditor at lower interest rates. On the other hand, indebted individuals will simply make their existing open ended accounts defaulted by the creditors making the borrower’s credit report and score worse.

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