The worst forms of delinquencies are charge-offs and debt collections. Both are the direct result of not having paid a bill for several months. When bills go unpaid, your account is sent to collections to try to obtain that money. These defaults are seen on your credit score immediately upon happening, often lowering it by about 35 percent. Because of this substantial blow, charge-offs and debt collections are horrendous for your credit score and can undo all of the hard work you’ve put into increasing that number. While they can be devastating, repairing your credit from this point on is the only way out of the mess and should be done with patient diligence.
Dispute Errors on Your Credit Report
Oftentimes, you’ll find errors or mistakes on your credit report that shouldn’t be there. A charge-off or collection might be stuck on your report that is either not true at all or was already handled months or years ago. If these are still found on your report, they will negatively affect your credit score. You can dispute these errors with the appropriate credit bureaus. In order to accomplish this, you’ll need to write a dispute letter to the handling bureau responsible for the mistake. You will need all of the necessary paperwork to prove why the report is an error and why it shouldn’t be on your credit report. If the bureau isn’t able to help you, you’ll want to dispute the mistake with the company that put it on the report in the first place.
It is possible to sue a credit bureau that does not remove errors on your credit report that you have disputed. While this is a last resort route, it’s a good idea to save any and all paperwork that you received in case you have to go to court.
Reduce Your Balance
Unfortunately, paying off a collection balance or charge-off won’t get rid of the blemish on your credit report. Once the damage has been done, it’ll be there for at least seven years. However, having an outstanding balance in collections and getting it paid off could mean the difference between being approved for the loans you need and getting a dreaded denial form. Loan and mortgage companies will see a thorough report of your credit history, including whether charge-offs and collections were paid in full or are still outstanding.
Before paying, you might consider asking the creditor that if it is paid in full, the item be removed from your report. This doesn’t guarantee that the creditor will do what you ask, but it never hurts to try. You might be surprised at how personable some creditors and collection agencies can be, especially with clients willing to pay them in full. You can also settle any debts that you owe, but the fault will be seen as a debt settlement on your report and can even hurt your credit score further.
If the balance is older, you could wait for it to drop naturally off of your credit report. Charge-offs and collections stay on your report for seven years, plus an additional 180 days from the first delinquency date.
Removing problems on your credit report sometimes requires a bit of finesse. You can choose to send a goodwill letter to the credit bureau, explaining why you got into debt in the first place, your current living situation and anything else you might think would help your case. While it never hurts to send a letter like this, it might not always work the way you hoped it would.
Stop Going Further Into Debt
Just because you experienced a credit blunder like a charge-off or collection does not mean that your excellent credit score is gone for good. The best way to fix the issue is to start putting some good choices onto your score. Banks and loan providers will see these new items as a step in the right direction and may approve loans, mortgages and credit cards despite a poor credit score. Get yourself current on any bills or credit cards that you have and do your absolute best to stay in the green. The worst thing you can do is allow other accounts to go into collections, further hurting your credit score and putting you in some pretty serious debt.
If you experienced charge-offs and collections with all of your old accounts, it’s time to open some new ones. While you may not get the best credit card interest rates with such a poor credit score, it’s a start to rebuilding that number. Be careful when charging items to a high-interest credit card, as these can become difficult to handle if you have a large balance to pay off. There are a select few companies that specifically work with individuals building and repairing credit, and they offer lower rates than lenders that solely rely on credit scores to determine interest fees.
When given adequate time, your credit score will slowly bur surely start going up. It’s all too easy to wreck your score with one bad investment or an account that’s gone into collections, but it’s not so quick to repair it. You can keep an eye on your score to see how it’s doing by using services like FICO and Credit Karma. Do all that you can to stay out of debt from here on out and you’ll be seeing an excellent score in no time.