Oct 5, 2009

Credit and Charge-offs: Three Possible Solutions to Increase Your Credit

A charge-off occurs when you are so far past due on payments that your creditor feels that they will not receive any payment. A charge-off means that the creditor has written off the account as a bad debt, but it does not relieve you of the obligation to pay the debt. Charge-offs have a severe negative impact on your credit, but once the account has been closed, you may find it difficult to get it reopened in order to continue making payments. However, there are some options when it comes to getting rid of charge-offs on your credit report, provided you have the means to pay at least a portion of the debt.

Your first and likely best option is to write your creditor and request a pay-for-deletion arrangement. In the letter, offer to pay a percentage of what you owe provided that the creditor agrees to remove the charge-off from your credit report. If the debt is fairly recent, you may need to offer the full amount as payment in order to get the creditor to agree. Not all creditors will agree to this type of arrangement, but if they do, be certain you have the pay-for-deletion agreement in writing before you send in your payment. You will have to use certified funds in this type of an arrangement, so be prepared take the extra step of purchasing a money order or cashier’s check. This option works best, because the derogatory credit history will be gone from your report as if it never existed.

Your second option is to arrange for the debt to be listed as ‘Paid in Full’ on the credit report, in exchange for payment. Just as with a pay-for-deletion agreement, you must be certain to get this in writing, especially if you work out a payment arrangement that is less than what you owe. The ‘Paid in Full’ listing will improve your credit score, but not as much as having the derogatory information removed entirely. What you do not want is a listing of ‘Settled’ on the account, as it indicates to other creditors that you do not fully meet your credit obligations.

Your last option, if you cannot work with your creditors in any other way, is to pay off the debt in full, with appropriate account numbers, reference numbers and any other necessary information included with the payment. Make copies of everything, and once the payment clears, you can dispute the listing on the credit report to have it updated as ‘Paid in Full’. Keep in mind that you must provide proof that the debt was entirely satisfied in order for this method to work, so you won’t be able to make a payment that is less than the full amount owed if you want this to be successful.

One final note: charge-offs remain on your credit report for up to 7 years. If the date for the charge-off to be removed from your credit report is close, you may wish to wait for it to be removed from your credit report entirely. This is true whether or not you ultimately decide to repay the debt, because repaying older debts can cause your credit scores to drop temporarily.

Getting your credit repaired can take some time if you have several charge-offs. Be patient, wait for the written agreement, and make the payments in certified funds in order to obtain the best results.

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Feb 29, 2008

Charge Offs and Bad Debts

Did you know that having just one charge off on your credit report can keep you from being approved for credit? Creditors see a charge off as a sign that you have not been responsible with your finances in the past and cannot be counted on to fulfill your financial obligations in the future. Unfortunately, charge offs can be remain on your credit report up to 7 years. However, there are steps you can take to remove them.

That’s great, but what exactly is a charge off?

A charge off is basically a bad debt. When a creditor is unable to collect on an account they write it off. Creditors usually write off bad debts after a certain amount of time (usually 180 days or so without payment) for tax reasons. Every year, corporations file a Profit And Loss Statement with the Internal Revenue Service. All of the year’s bad debts are added together as an item in the “Loss” section of the P & L Statement, and are deducted from the corporation’s tax return, much like other business expenses. To creditors, bad debts and even fraud are simply part of the cost of doing business.

Once it’s been charged off, do I still owe it?

Of course you do. The debt is still legally valid and the creditor can attempt to collect the full amount. Most creditors will sell or assign the account to a debt collector. So, here’s what happens: The original creditor reports the account as a charge off and the collector reports it as a collection account. So, now you have 2 negative accounts on your credit report.

Ok, so what if I pay it off?

Paying off a charge off will not remove it from your credit reports. It will simply be updated to a “paid charge-off,” which is slightly better, but still considered a seriously derogatory item and can still remain on your credit report for 7 years.

Yikes! So, how can I get charge offs removed?

Through creditor negotiations and credit bureau disputes, you may be able to improve the status of the charge off or completely remove it from your credit reports. In exchange for resolving the debt, your creditor may be willing to remove the account or report it as “paid in full.” In the event where a charge off is being inaccurately reported on your credit reports, you can dispute it directly with the credit bureaus.

Learn more about removing charge offs!

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Aug 25, 2007

How long do negative items remain on my credit report?

Most negative items remain on your credit report for 7 years from the date of first delinquency, but there are some exceptions.

Delinquencies (30 – 180 days late) remain for 7 years from the date of the initial missed payment.

Collection accounts remain on your credit report for 7 years from the date of the initial missed payment that led to the collection (the original delinquency date). When a collection account is paid in full, it will be marked “paid collection” on the credit report.

Charged-off accounts remain for 7 years from the date of the initial missed payment that led to the charge off (the original delinquency date), even if payments are later made on the charged-off account.

Closed accounts are accounts that are no longer available for further use. Closed accounts may or may not have a zero balance. Closed accounts with delinquencies remain 7 years from the date they are reported closed, whether closed by the creditor or by the consumer. Positive closed accounts remain at least 10 years.

Lost credit card – If there are no delinquencies, credit cards that are reported lost will continue to be listed for 2 years from the date the card is reported lost. Delinquent payments that occurred before the card was lost are reported for seven years.

Bankruptcy – Chapters 7, 11, and 12 remain for 10 years from the filing date. Chapter 13 remains 7 years from the filing date. Accounts included in bankruptcy remain 7 years from the date they were reported as included in the bankruptcy.

Judgments (child support, civil & small claims) remain on your report for 7 years from the date the judgment is filed.

Tax Liens – (city, county, state, and federal) Unpaid tax liens remain 15 years from the filing date. Paid tax liens remain 7 years from the paid date of the lien.

Inquiries remain on your credit report for 2 years, with those in the last 6 months usually given the most consideration.

Positive Accounts remain indefinitely and paid positive accounts remain 10 years.

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