Credit Repair---Old Charge-Off Strategy

Credit repair is mostly about paying debts on time and about getting credit limits paid down. There are, however, a number of other factors to consider when you are trying to fix your credit. Charge offs can be defined as debts that were not paid, and were eventually written off by the original creditor and sold to a collection agency. Once a collection agency has bought a charge off account, they will aggressively attempt to collect the debt, using collection tactics including persistent phone calls, letters, and in many cases settlement offers.

Obviously, you should make every attempt to meet your obligations and pay your bills on time. Unfortunately, with the current state of the economy, paying bills has become a major challenge to many hard working people. Once a credit card has gone unpaid for a certain amount of time--usually around 5 to 6 months---the card company will charge off the debt. Once you have a debt that charges off, you have that blemish on your credit for the next seven years.

Should you attempt to make payment arrangements or accept a reduced settlement offer from the collection company that buys your bad debt from the original credit card company?

Maybe. Keep this in mind: Once your credit card company has reported you 30, 60, 90, 120 days late and then reported the account as charged off, that is the worst they can do to your credit. It will remain there for seven years, but if you do a settlement, enter into a payment agreement and in some cases dispute the account, you run the risk of re-setting that seven year clock. Simply put, if you have charge offs on your credit report, you might want to consider trying to hold out until they fall off at the 7 year mark.

We in no way advocate not paying debt that you legitimately owe, but if you have a choice between making payment arrangements on an old charge off account and having the account update and remain on your report for another 7 years, or just holding out a bit longer until the original collection account reaches the initial 7 year mark, you might want to seriously consider waiting.

On the other side of the coin, having charge off accounts on your credit report, regardless of how old they are can prevent you from getting home and auto loans and can even prevent you from getting certain types of jobs. The main point is to be aware of the timetable and the potential negative affects of paying off old bad debt accounts as opposed to just letting them fall off at the seven year mark.

By Personal Financial Guide

Credit Basics

Credit history can be a factor in people's lives that can have a dramatic positive or negative impact. Many people do not learn about the importance of building and maintaining a good credit rating until it is too late. Today, bad credit and no credit can influence:

Your insurance rates

Your mortgage rates

Your auto loan rates

Your employment opportunities

Obviously, the worse your credit history is, the higher rates you will pay on insurance, auto loans and home loans. In fact, especially lately, bad credit can cause you to be unable to get any type of mortgage or auto loan. It has also become more common for employers to include credit screening as part of their background check when considering a job applicant. In some cases, bad credit history can cause you to not get a job.

The best way to maintain and improve your credit score--FICO--is to pay bills on time and to keep credit card balances paid down below half of the total credit line. Avoiding late pays and avoiding maxing out credit cards are not the only factors that make up your credit score, but they are two of the most important. Other factors that influence credit score are:

Amount of available credit(The higher the credit lines, the better the score

Age of accounts(The longer you pay on your mortgage the better your score

Number of accounts(Generally, people with a mortgage, auto loan and at least one credit card will score better then people with only an auto loan or a single credit card.

If you are in a situation where you need to repair your credit, understand that it will take time. The fundamental basis of having decent credit is to be able to pay your bills on time. Understandably, being able to pay bills on time has been a big challenge for many of us over the past couple of years and will most likely continue to be one. However, once you are able to pay on time, the best option for repairing credit is to get credit cards paid down at least below half of the total credit line and re-establish payments on all other loans that you might have that have not charged off. Most derogatory credit stays on your report for at least seven years, so the best thing to do is to start rebuilding perfect pay history as soon as possible.

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