An account charge-off, in which a bank essentially writes off your ability to pay your credit card debt, has a devastating effect on a consumer's credit score and is viewed negatively by creditors. Understanding your consumer rights and when to pay a charge-off will assist you in mitigating its overall effect on your credit score and may help lead to a quicker credit score recovery.
Credit Reporting Guidelines for a Charge-Off
According to the Fair Credit Reporting Act (FCRA), a charge-off can legally stay on a credit report for seven years from the date of the last serious delinquency and have a serious effect on your credit score. If a creditor assigns a charged-off debt to a collection agency, the falls off a credit report on the original date of the last serious delinquency or the date of the charge-off, whichever is later.
Managing a Charge-Off
The charge-off is among the most devastating of blemishes to occur on a credit report. If it is not managed correctly, the resulting blemish can affect your credit score for years to come and drain your wallet needlessly. Knowing when to pay and when not to pay can impact your credit score dramatically.
Considerations About Paying a Charge-Off
Whether you should opt to pay a charge-off is dependent on each individual situation. If you are applying for a loan or mortgage, the lender may require that the charge-off is paid in full before closing the loan. This is often done to allow a rapid refiguring of your credit score so that you qualify for the loan. Another instance in which paying a charge-off makes sense is when your credit report is in good overall standing and it's the only blemish on it. Often paying on a recently charged-off debt will allow your credit score to recover faster.
When To Seek Legal Advice
There are occasions when paying a charge-off makes no difference to your credit score. If you are considering filing bankruptcy, it is important to discuss with a legal adviser the implications of paying on a charged-off account. Often during a bankruptcy the charged-off account is overlooked. At times, filing bankruptcy can result in a faster credit score recovery than satisfying a charged-off debt because of the weight the existing scoring system places on a bankruptcy filing. Additionally, if the charge-off is close to meeting the FCRA reporting guidelines, the effect of paying on a charge-off may have little to no impact on the overall credit score.
Consumer Right to Dispute
It is important to review your credit reports regularly. The FCRA provides every consumer the right to dispute information contained in them, so if you suspect that there is inaccurate information in your credit file, promptly request that the credit bureaus investigate it. Removing expired information and being diligent about correcting errors will result in better credit management, leading to a faster credit score recovery.
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