Do Creditors Reopen Accounts After Charge-Offs?
The way you pay your bills accounts for 35 percent of your FICO credit score. It is the single largest factor in determining how high or low your score will be. On-time payments increase your score, while late payments can lower it. A charge-off is a serious delinquency. If you have an account that's been charged off, it's beneficial to understand whether a creditor can reopen that account.
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Significance
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After a payment is delinquent by about 150 days or more, the creditor may assume the debt is uncollectible. It writes the debt off as a loss against its earnings for tax purposes. This is called a charge-off. Once a debt is charged off, the creditor does not reopen that account and, as such, the account cannot be rehabilitated, or brought to a positive status. It is reported to the credit bureau as a charge-off and will remain on your credit report for up to seven years.
Considerations
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A write-off is an accounting procedure on the part of the creditor. It does not alleviate your responsibility for the debt, and the creditor still retains the right to pursue payment of it. If you pay the charged-off amount, the creditor will report that payment to the credit bureaus. The bureaus will list the account as a paid charge-off, but the bureau will neither remove the charge-off from your report nor remove the charge-off status of the account.
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Credit Score
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A charge-off is a very negative item to have on your credit report and will have an adverse impact on your score, according to FICO. Late payments are reported on your credit report in 30-day increments. According to MSN Money, one payment that's 30 days late can lower your score 60 to 110 points, depending upon what your score is at the time. The older the charge-off becomes, however, the less of an impact it will have on your score, although it may impact a future creditor's decision to approve you for credit.
Collections
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A creditor may decide to place the charged-off debt with a debt collector, which can pursue you for the amount owed. This can be a double whammy for your credit. Collection accounts are also considered a negative item by FICO and will also damage your credit score. How much the collection drops your score depends upon other data present in your credit report. Under the Fair Credit Reporting Act, a collection account can remain on the report for up to seven years.
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