The Charge-Off

Sometimes we get a little too deep in debt, often because of circumstances beyond our control, and bills simply can't be paid. If you get too far behind, your lender may charge-off your account, believing it will never be paid. It sounds like you're off the hook, but you're not.

Paying for a Charge-off

Preventing the charge-off
If you are having a hard time getting the bills paid, the best thing to do is contact the lenders, letting them know why. You may be able to buy yourself some time before your account is charged-off.

The consequences
When your lender puts a charge-off on your account, a note is put on your credit report that the debt was never paid. That costs you points on your credit score, and serves as a warning to other lenders that you're a risk for future loans. That warning will sit on your credit report for the next seven years.

Dealing with the charge-off
If you become able to pay the debt, you can contact the lender to negotiate. If it has been some time since the charge-off occurred, it's likely they will accept less than the total amount. It's essential that you ask them to change your credit report to say "account paid" in exchange for your payment. "Paid" reflects more favorably than "settled", so be sure to clarify. Also, get the agreement in writing before sending in your payment. That way, you have documentation promising to help repair your credit.

It's critical to keep an eye on your credit score. When you apply for a loan, it will determine whether you get that loan, and how much interest you'll pay. We'll explain what it is and why it matters so much.

Making the Score

What is it?
Your credit score is a number that is the result of a formula used by the three major credit bureaus (Equifax, Experian, Trans Union). A combination of factors determines your score. The highest score you can get is 850.

Why does it matter?
According to Robin Holland, with Equifax, your score lets a lender know the risk they are taking when giving you a loan. If your score is close to 850, they are relatively sure you will make your payments on time. The lower the score, the lower the odds.

Loan Impact
You will pay more in interest if your score is low. That means you'll be paying more than someone with a high credit score for the same thing.

What's your number?
To find out what your credit score is, simply contact the credit bureaus. You can actually order your credit report twice a year at no cost.

What happens if you've always paid your bills on time and your credit report says something different? Credit reporting agencies (CRAs) are not immune to mistakes. So, it's important for you to stay on top of your report. That way, there will be no surprises when you're about to sign on the dotted line. When reading your report, you'll notice it contains four types of information:

Identifying Information

Name
Current and past addresses
Social Security number
Year of birth
Current and previous employers
Spouse's name, if you're married

Credit Information

Credit accounts or loans you have with:

Banks
Retailers
Credit card companies
Other lenders

Public Record Information

This is any information that's in state and county records including:

Bankruptcies
Tax Liens
Monetary Judgments

Inquiries

Your credit report must contain a record of all creditors who have asked for your credit history within the past year. It also includes a list of people who have requested your credit history for employment purposes in the past two years.

Because more than one of the credit agencies may have a file on you, most financial experts suggest ordering records from all three. You can contact the three major bureaus at:

Equifax
1-800-685-1111

Experian
1-888-397-3742

Trans Union
1-800-916-8800

Fix All Mistakes

After you get your credit reports, make sure they're accurate. If you find any mistakes, contact the CRA immediately.

In writing, tell the CRA what you believe is inaccurate.

Include copies of documents that support your position. Don't send originals.

Send your letter certified mail.

Keep copies of your letter and all enclosures.

CRAs must investigate the items in question within 30 days, unless they consider your disputes frivolous.

When the investigation is complete, the CRA must give you the written results and a free copy of your report. Upon your request, the agency must also send a correction to anyone who received a copy of your report in the past six months. You can also have a corrected copy sent to anyone who received a copy of your report over the last two years for employment purposes.

If an investigation does not resolve your dispute, ask the CRA to include your statement in your file and in future reports.

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