The account may be transferred in good standing or listed as a charge-off. Think back to the months before your account was officially charged off — you probably missed a number of payments.
These missed payments alone can significantly damage your credit, because payment history is a major factor in determining your credit scores. But your scores will most likely suffer further if the account is finally listed as a charge-off because of that derogatory mark. Next, if your account is in collections, it could also lower your scores. And not paying the collections agency can further damage your credit, because the agency can report missed payments to the credit bureaus.
And, thanks to the Fair Credit Reporting Act , you have the right to have negative information like a charge-off removed from your credit reports after seven years. First, it depends on whether or not the charged-off account is accurate. To make sure the information about your charge-off is correct, here are a few things to look for. It may be tempting to not pay a charge-off, since your lender has likely stopped trying to collect on the account.
Plus, that charge-off can hurt your chances of getting a loan — some lenders may ask you to pay all outstanding debt before you can take out a mortgage or other type of loan. Lenders usually see a paid charge-off as more favorable than unpaid debt.
Before you do, write to the agency and ask for proof that it owns the account. One thing you can do is try to negotiate with the original lender. Note that just because a debt has passed the statute of limitations on its payment does not mean that the consumer no longer owes. It just means that the creditor or debt collector will not be able to get a judgment in court for the payment of the old debt.
Creditors refer to uncollectible debt as bad debt. When a firm incurs a bad debt, it writes off the uncollectible amount as an expense on the income statement. For a debt to qualify as a business bad debt, it must be incurred as part of normal business operations.
The debt can be associated with either another business or an individual. Bad debt charge-offs are more likely to occur when associated with unsecured forms of credit, such as credit card debts or signature loans.
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