Category: Charge Off

How To Handle Charge Offs

Charge offs can take their toll on your credit report. The long-term effects of unpaid bills on your credit reports can last for up to seven years. While it may be tempting to ignore past transgressions, there are proactive ways to approach the dark spots on your credit report. Follow the steps below to properly handle a charge off and minimize the damage.

1. Review

Before dealing with the charge off citation itself, begin by ordering copies of your credit reports from the three major bureaus: Experian, TransUnion, and Equifax. Next, locate the name of the creditor who reported the charge off. (Note that the citation may appear on all three reports.)

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Debt Validation and Collection Agencies

Bad credit is an inevitable consequence of unpaid bills. However, many consumers know from personal experience that the woes of charged off accounts don’t end there. Charged off accounts are almost always sold or assigned to collection agencies who attempt—sometimes illegally—to recoup the money owed. While it may be tempting to settle your debt, it won’t do anything to help your bad credit. In fact, reactivating old collections can, in some cases, hurt your credit score by “re-aging” the account with a fresh credit report notation. Further, not all collection agencies are lawfully able to collect your debt. Before jumping into a rash decision, read the tips below about debt validation and how to deal with collection agencies and their tactics.

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Paying Old Bills and Your Credit Score

The meaning of the term “charge off” confuses many debtors. Some individuals assume that once an outstanding bill is charged-off they no longer owe the outstanding balance. However, a charge-off status does not mean that the unpaid bill is forgotten, forgiven, disappears or is no longer collectable.

Many creditors write off delinquent and unpaid accounts between 180 and 240 days from the date of last payment. The term charge off is a bookkeeping declaration that creditors and financial institutions use to notate that an outstanding delinquent balance will likely never be paid by the consumer. As a result, the creditor has moved an outstanding balance from an active accounts receivable status to a bad debt ledger. For the debtor, the term means that the written off status of the account will likely appear as a negative entry on their credit report and can vastly lower their overall credit score.

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Old Bills and Charge Offs

Losses of employment, divorce or a death in the family are just a few of the reasons people forget or are unable to pay their bills. When a debt goes unpaid for longer than 180 days or more, a creditor can discharge the bill via a charge off.

When a creditor deems an account as charged off, they transfer the account to their bad debt ledger. Once the debt receives this designation, the creditor can seek the assistance of a bill collector or sell the outstanding balance to a collections agency. If recovery attempts fail, the third-party debt collector can then elect to sell the bill to yet another collections entity. Bill collectors trade frequently in old bills and charged-off collection accounts. The act occurs so often that there is a good probability that some, if not most, of the original account documentation is lost.

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Five Ways to Avoid a Charge Off

For some, bad credit is an inevitable part of financial hardship. A shaky economy and sparse job market have left many at the mercy of their creditors. While it may be difficult to pay your bills, ignoring them is not a credit solution. On the contrary, allowing delinquent accounts to linger can do long-term damage to your credit report. When your period of non-payment extends past a certain point—usually 180 days—your creditor may opt to take your debt as a business loss and sell it to a collections agency. When this occurs, the results can devastate your credit report for up to seven years.

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