In part one of how to increase your credit or FICO score, I went over several methods that could potentially help your credit score. The methods that I mentioned included paying debts on time, paying down available balances, and not over applying for credit. In part two, I went over how collection account can effect ones credit score and how to try to eliminate these from your credit reports. In part 3 I want to talk about one of the worst type of account that can appear on a person’s credit report. This type of account can drop ones FICO credit score up to a hundred points or more. This type of account is a charge-off account. There are two types of charge-off accounts. These two types are paid and unpaid charge-offs. The purpose of this article is to try and show you how to deal with these types of accounts and how to fix these so your credit score will increase.
The first type of charge-off account is an unpaid charge-off. This is when a person has failed to pay a payment for over a hundred and twenty days or more. The original creditor gives up on the account and charges the account off. This is basically the way companies write debts off their books. An unpaid charge-off is one of the worst things that a person can have on their credit report. An unpaid charge-off account will stay on your account for over 7 years. This looks very bad on a credit report because it shows that a person does not honor their debts.
The second type of charge-off account is a paid charge-off. This is when an account has been charged-off, but is later paid in full. This looks a lot better in a manual review of your credit report if someone is looking over your credit history. The person will see that the debt was settled and the person ended up paying the debt.
So it seems like the simple solution to an unpaid charge-off would be to pay the debt and change the status of the account to a paid charge-off. While this looks good on a manual review, the sad part is that it will hardly have any effect on your score.
This is one of the many complaints against the credit reporting agencies and the way that FICO credit scores are calculated. A person would think that paying off a debt would help increase their FICO score. Even if a person pays an unpaid charged-off account, it will not really help their score. It does not reward a person for paying off the account and settling up with the debt.
I don’t advocate not paying the debt off. If you do owe the money, you should pay the debt. What is important is to strike a deal with the creditor or collection agency that has your account. If it is the original creditor, offer to pay the full amount owed if they will delete the charge-off from your credit report. If not then it is up to you whether you pay the debt or not.
If the account is being held by a collection agency, offer to settle the account with them if you pay them 50 percent of what is owed up front if they will delete the account. If they don’t accept that offer, then offer 70 percent. Offer what you are comfortable with. If you are not satisfied with the deal, hang up and call them back at another time. Just be careful with dealing with collection agencies and make sure you get everything in writing. Refer to part 2 of my series on raising your credit score with more information on dealing with collection agencies.
I hope these tips will help you fix and clean up your credit report. A healthy credit report and a high FICO score will guarantee the best interest rates and save you a lot of money in the long run.
