The most obvious piece of this category is whether you pay your bills on time or not, and for people with strong credit histories, it usually ends there. On the other hand, if you're one of the millions of Americans without a spotless credit history, some other things could be weighing down your credit score in the payment history category. Two big ones are collection accounts and charge-offs.
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These can be score-killers and can linger on your credit for years, especially if you don't know how to deal with them. With that in mind, here's a guide to dealing with collections and charge-offs on your credit. To be clear, these aren't easy to get rid of, but they're definitely worth confronting head-on. With smart planning you can put yourself in a position to deal with them wisely and help accelerate your credit-repair process. What is a collection account?Ī collection account is what happens when a creditor has unsuccessfully tried to collect a debt from you for some time. Accounts usually don't go to collections until they are three to six months old. In this case, what generally happens is the creditor sells your debt to a collection agency for pennies on the dollar. Then the collection agency assumes responsibility for collecting the debt. You get a collection letter and a big ding on your credit score. What is a charge-off?Ĭharge-offs tend to be worse than collections from a credit repair standpoint for one simple reason. You generally have far less negotiating power when it comes to getting them removed.Ī charge-off occurs when you fail to make the payments on a debt for a prolonged amount of time and the creditor gives up. The creditor then writes off the debt as a loss. This generally happens after about six months or so of non-payment, but it varies among creditors.
In many cases, the creditor will sell your debt to a third-party collection agency.Īfter your debt is charged off, the creditor can continue to try to collect the debt, or they may decide to sue you for it.
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