My Debt Has Been “Charged Off.” What Now?

“Michelle, last year I lost my job and was unable to keep up with my credit card payments. The credit card accounts have been closed and the accounts are being reported as “charge offs” on my credit reports. I don’t know why, but the accounts are still showing outstanding balances. Since the accounts have been charged off that means that I don’t owe the debt anymore and the balances should be zero, right? What gives?!”

A somewhat common misconception which consumers may have is the idea that if a bill is charged-off then the debt is no longer owed. Unfortunately for the consumer, that is a myth. A charge off does not equal forgiveness of a debt.  Charge off is simply a classification or a category that creditors give to debt which they will be writing off as a loss for tax purposes. When a charge off notation appears on a credit report, it does not mean that the consumer no longer owes the balance. The balance may still be very much owed to the creditor or collection agency.

When a debt is charged off by the original creditor (typically once the account has become around 6 months past due), it is often sold or turned over to a collection agency. If you can afford to pay the debt before it is reported to the credit reporting agencies, you should do so. You can save yourself a big headache in the future by paying the account now.

It is also important to be aware of your rights concerning charged off debt. Take a look at the list below to protect yourself from “credit bullies” who are employing abusive or illegal collection tactics.

Know Your Rights

1. FDCPA (Fair Debt Collection Practices Act) -

Collection agencies are not allowed to harass you. They cannot call you excessively, threaten you, or call you at all hours of the night. Collection agencies cannot call your friends and family members in an attempt to embarrass you. There are a lot of other protections afforded to you under the FDCPA. If you have been called or harassed by a collection agency, it might even be in your best interest to speak with an attorney who specializes in FDCPA cases. In fact, feel free to contact us if you would like a referral to a reputable attorney in your area. If you have been harassed then there is a chance your attorney will even represent you on contingency with no upfront funds coming out of your pocket for attorney fees.

2. FCRA (Fair Credit Reporting Act) –

A. Re-aging is illegal.
Derogatory accounts are allowed to remain on your credit reports for 7 years from the date of default (when the original account became 6 months past due). If a collection agency changes the date of default on the original debt in an attempt to manipulate the date when an item is purged from your credit reports, that is known as re-aging and it’s illegal.

B. You have the right to dispute inaccurate, questionable, unverifiable, and outdated accounts.
If you believe that a collection account on your credit reports has been re-aged, you have the right to dispute the account with the credit reporting agencies. You can file disputes on your own, or with the help of a professional like HOPE4USA. You also have the right to dispute any accounts which you believe to be inaccurate or unverifiable. 

The best thing that you can do for your credit scores is, of course, to keep all of your payments on time. However, anyone using a little common sense can realize that most people never set out not to pay their bills. It’s not like consumers with credit problems just wake up one morning and say, “I think I’ll stop paying my bills today.” No, most people who get into credit and financial trouble do so due to unfortunate circumstances like job loss, illness, family emergencies, etc. Bad credit happens to good people every single day.

If you have made credit management mistakes in the past, there is good news. Bad credit does not have to last forever. CLICK HERE to download our free HOPE4USA Credit Report Toolkit for some expert advice on how to get started on your road to recovery today!

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Michelle Black is an author and leading credit expert with over a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.

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Is a Debt Collector Violating Your Rights?

Dealing with a collection account is never any fun. In fact, it can be extremely stressful and embarrassing. However, if you are in the unfortunate situation of having collection accounts on your credit reports and receiving calls or letters from debt collectors you are certainly not alone. Your situation is not even unique. According to the Central Financial Protection Bureau (CFPB) nearly one third of consumers, or around 73 million people, currently have at least one or more collection accounts being reported on a credit report.

Yes, debt collectors have a job to do. Some of them even do their job well - that is to say they do it ethically and legally. However, there are many debt collectors who ignore the law, trample over your rights, and will harass you in an attempt to extort payment.

Do you know your rights when it comes to debt collection? The Fair Debt Collection Practices Act (FDCPA) has a strict list of "Do's" and "Don'ts" which debt collectors are required to follow when contacting you in an attempt to collect a debt. Debt collectors are not allowed to simply do anything they please. Here are 5 of the most important rights which are afforded to you under the FDCPA.

1. Limitations on Calling - Debt collectors are not permitted to call you before 8:00 AM or after 9:00 PM. Furthermore, these calling limitation are based upon YOUR time zone, not the time zone of the debt collector.
2. Restrictions on Sharing Personal Information - Debt collectors are not allowed to share your personal business with others. Yes, they can call your job, your family, and even your friends to request your contact information. However, they are prohibited from mentioning your debt and they are only permitted to call each person once. Period.
3. Harassment Is Prohibited - Debt collectors are not allowed to threaten you with violence, they are not allowed to use foul or obscene language when speaking with you, and they are not allowed to call you excessively.  
4. Restrictions on Calling You at Work - If you request that a debt collector stop contacting you at work then they must honor this request. You can make the request in writing or verbally.
5. Lying is Off Limits - Debt collectors are not allowed to lie to you or to misrepresent themselves in any way while attempting to collect a debt. They cannot, for example, pretend to be a government agency in order to frighten you into paying a debt. They are not even allowed to use a fake name. In fact, dishonestly of any kind is a big no-no.

Free Debt Collection Letter Review Service

Many debt collectors will often contact you via mail in an attempt to collect a debt from you. Unfortunately, these collection letters are notorious for violating your rights under the FDCPA. If you receive a letter from a debt collector then we highly recommend taking advantage of our FREE Debt Collection Letter Review Service.

As part of HOPE4USA's free Debt Collection Letter Review Service we have partnered with an attorney who specializes in the Fair Debt Collection Practices Act. When you forward your debt collection letters to our team we will have an attorney to review your letters and search for any violations of your rights. If a violation has occurred then you may even be entitled to a settlement. The best part is that this service is available to you at absolutely no cost, whether you are a current member of our program or not.

CLICK HERE or call 704.499.9696 to request a free review of your collection letters now. 

Free Collection Letter Review

We help you protect your rights when debt collectors contact you. If you rights are violated, you may even be entitled to a settlement. 

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Michelle Black is an author and leading credit expert with over 13 years of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here. 

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How to Negotiate a "Pay for Delete" Settlement

Most consumers unfortunately do not realize the truth about collection accounts and how these accounts impact their credit scores. Collection accounts of any dollar amount (even $0) have the potential to cause severe credit score damage. The truth is that once a collection account worms its way onto a consumer's credit report then that account is probably going to have a negative impact upon the consumer's credit scores to at least some degree as long as the account is present. Furthermore, paying off a collection account usually will not have the impact of raising a consumer's credit scores.

Paid Collections Usually Remain on Credit Reports

When a consumer pays or settles a collection account the collection agency is responsible to notify the credit bureaus that the consumer's account balance should be updated to $0. (Note: collection agencies often drop the ball and do not update paid/settled collection accounts properly. When this occurs it is ultimately the consumer's responsibility to dispute the error with the credit bureaus. A consumer has the right to dispute inaccurate accounts on his own or with the help of a professional like HOPE4USA.)

If a collection agency and the credit bureaus are all following the Fair Credit Reporting Act properly (BIG if) then a $0 balance collection is actually allowed to remain on the consumer's credit reports. According to the Fair Credit Reporting Act, a collection account is legally allowed to remain on a credit report for 7 years from the date of default on the original account as long as the account is being reported accurately and it is verifiable. Paying or settling a collection account alone is not grounds to force it to be removed from a consumer's credit reports and, generally, paid collection accounts stay put.

Why Paid Collections Still Hurt Credit Scores

The FICO credit scoring models which are currently in use by the vast majority of lenders are built so that they do not care so much about the balance of a collection account as they care about the occurrence of a collection account in the first place. Therefore, paying or settling a collection account will generally do nothing to raise a consumer's credit scores (with the exception of paying/settling a credit card collection). FICO Score 9, announced in the summer of 2014, was built to ignore collection accounts with a $0 balance. However, lenders are not currently using FICO Score 9 and only time will tell whether or not the new scoring model will be adopted in the future. In the meantime, $0 balance collections will continue to have a negative impact upon a consumer's FICO credit scores.

The Pay for Delete Strategy

There is nothing in the Fair Credit Reporting Act which compels or requires a collection agency to report an account on a consumers credit reports. Credit reporting has always been a voluntary practice. As a result, it may be possible for a consumer to negotiate a "pay for delete" settlement with a collection agency.

A "pay for delete" settlement is essentially an agreement for a collection agency to remove an account from a consumer's credit reports once the account has been paid or settled as agreed. In order to properly negotiate a "pay for delete" agreement a consumer needs to be sure to take the following steps.

1. Call the collection agency.
   To begin a consumer should call the collection agency who has reported the account to his credit reports and offer to settle the account in question based upon the understanding that the account will be deleted from his credit reports once the settlement has been paid.
   
   
2. Get the offer in writing.
   The harsh truth is that collection agents are not always known for being the most honest people on the planet. If a collection agent promises to delete an account after payment is received and does not follow through then the consumer will need the offer in writing in order to have any type of recourse. "He said, she said" simply is not going to cut it if a collection agency tries to renege after the fact.
   
   
3. Check credit reports after the fact.
   The only way to truly know if a collection account has been deleted from a consumer's credit reports is for the consumer to check his credit reports after the collection agency has had time to update the account (i.e. around 30-60 days after payment). A consumer can also subscribe to a 3-bureau credit monitoring service, at least temporarily, so that he will be notified immediately when any changes take place on his credit reports. CLICK HERE to check out some great 3-bureau credit report and score monitoring services.

The Catch

While it is not illegal for a collection agency to delete a paid collection account (remember that credit reporting is completely voluntary), deleting paid collection accounts is something that the credit bureaus frown upon heavily. In fact, when a collection agency signs their service agreement with each of the credit bureaus - Equifax, Trans Union, and Experian - there is language in the agreements which warns collection agencies not to delete collection accounts simply because they have been paid. If a collection agency is caught violating the terms of their service agreements then they could lose their ability to report collection accounts to a consumer's credit reports - a crushing blow to any collection agency's bottom line and something that they want to avoid at all costs.

Negotiating a "pay for delete" settlement is a difficult, often downright impossible undertaking. However, that does not mean that consumers with collection accounts are without hope of improving their credit. CLICK HERE to download a free copy of the HOPE4USA Credit Repair Toolkit for help getting started on your journey toward better credit today! 

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Knowing exactly what is on your credit reports and where your credit scores fall currently is the first step for anyone looking to build healthy credit.

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Fix Your Credit, Fix Your Life

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Meet Your Team

Helping Our Clients Stand Up to “Credit Bullies” Every Day!

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Michelle Black is an 13+ year credit expert with HOPE4USA, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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Is Settling My Debt the Key to Better Credit?

Let's face it, no one plans on having bad credit. Aside from a few bad apples, the vast majority of consumers never set out with the intention of acquiring debt and failing to pay it off according to terms. Instead, most consumers who develop bad credit do so as a result of some unfortunate circumstance such as a job loss, an illness, divorce, etc. Even those consumers who find themselves swimming in collection accounts as a result of poor financial planning typically do not realize that they have overextended themselves financially until they have already bitten off more than they can chew.

One of my favorite sayings is the HOPE4USA slogan, "Bad credit happens to good people all the time." The reason why this statement means so much to me is because it is 100% true. Whether a person is facing credit problems due to bad luck or bad decisions, that does not mean that he or she is a bad person. Everyone deserves a second chance.

Cleaning Up Past Mistakes

Unfortunately, when most consumers set out to begin cleaning up their past credit mistakes they do it wrong. I cannot count how many consumers have expressed their frustration to me over the years after they paid off a pile of old collection accounts and their credit scores remained low - often even lower than they were initially. The fact that most consumers fail to understand is that paying off or settling collection accounts generally will not do anything to improve credit scores.

Why Paying Collections Doesn't Raise Credit Scores

The FICO credit scoring models currently in use by lenders do not reward consumers for paying off collection accounts. Current versions of FICO are much more concerned with the fact that a collection occurred in the first place than they are with the balance of the account. In fact, a collection account will have virtually the same negative impact upon a consumer's credit scores whether the balance is $2,000 or $0. (Defaulted credit card accounts are typically the exception to this rule.)

The purpose of a FICO credit score, also known as the design objective, is to predict the likelihood that a consumer will become 90 days past due on any of his/her credit obligations within the next 2 years. Current FICO credit scoring models are built with the assumption that a consumer who had collection accounts in the past is still likely to be 90 days late on an account in the future. Therefore, the presence of a collection account - regardless of the balance - is going to have a negative credit score impact.

Change on the Horizon?

FICO 9, the most recent credit scoring model released by FICO was designed to treat $0 balance collection accounts very differently than they have been treated in the past. The new scoring model was built with scoring logic to completely ignore collections with $0 balances. The result? Consumers who settle or pay their collection accounts could potentially see a massive score increase under the new scoring model.

Before you get too excited it is important to realize that it will likely be many years before FICO 9 is widely adopted by lenders - if it is even adopted at all. Check out my previous article, "Why You Shouldn't Be Too Excited About the New FICO 9 Scoring System...Yet" for more details. If lenders are not using the new scoring model then it is impossible for consumers to see any benefit from the new scoring logic.

What Should I Do?

If you believe that the fact that settling your collection accounts will not likely help your credit scores is a good reason to ignore the accounts, you may want to think again. Unpaid collection accounts have the potential to come with a lot of nasty consequences. Lawsuits, judgments, and wage garnishments are a few of the unpleasant side effects that often accompany unpaid debts. Settling past due accounts can be a very smart move, though it may be advisable to consult with a reputable professional for help and guidance before you get started

Where to Begin

It is important not to become overwhelmed when you make the decision to begin trying to fix past credit issues. The best place to start is to get a copy of all 3 of your credit reports (and possibly your scores as well). You can access a free credit report from each of the 3 major credit bureaus every year at www.annualcreditreport.com. Credit scores are not free, but you can often access them as part of a free or inexpensive trial to a credit monitoring service. CLICK HERE to compare trial offers which offer 3-credit scores.

Once you have your reports, review them thoroughly for mistakes. Credit mistakes happen more commonly than many consumers realize. In fact, the FTC estimates that over 40 million consumers may have errors on their credit reports.

When reviewing accounts for errors remember that all aspects of the account (i.e. balance, date opened, date of last activity, etc.) should be correct. If errors are discovered you have the right according to the Fair Credit Reporting Act to dispute those errors. You can dispute credit errors on your own or with the help of a professional. CLICK HERE for a great, free Credit Repair Toolkit to help you get started or you can schedule a no-obligation credit analysis with a HOPE4USA Credit Expert.

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Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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Credit Reports

Knowing exactly what is on your credit reports and where your credit scores fall currently is the first step for anyone looking to build healthy credit.

---

Credit Cards

Compare the credit card offers below to determine which cards are right for you.

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Fix Your Credit, Fix Your Life

Your first step towards the credit you deserve!

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