CREDIT ISSUES EXPLAINED

What is a credit scoring?

  • a system creditors use to help determine whether to give you credit, and how much to charge you for it

  • "credit worthiness" comes from calculating your credit history against a system called the Fair Isaac Model

    • bill-paying history​

    • the number and types of accounts your have

    • late payments

    • collection accounts

    • outstanding debt

    • age of your accounts

    • scores range from 300 - 850


Charge-Offs

  • among the most damaging negative items on your credit report

  • signals to potential lenders that you're a risky borrower

  • means you've stopped paying off a debt and the creditor records your account as a lost cause

  • charge-off does not mean forgiven

  • Negotiating a settlement:

    • determining who owns the debt​

    • gathering details about the debt

    • offering a settlement amount

    • requesting a "pay for delete"

    • getting the agreed settlement in writing

  • Should I pay it off?

    • ​Paying a closed or charged off account will not typically result in immediate improvement to your credit scores, but can help improve your scores over time

  • What happens if I don't pay it off?

    • if you choose not to pay, it will continue to be listed as an outstanding debt on your credit report and you may have issues getting approved for loans​

  • What happens when you pay off a Charge-Off?​

    • score will not increase immediately​

    • will need to continue paying all your other accounts on time and handle your debt responsibly

  • It will stay on your credit for 7 years and 180 days from the date of the first delinquency that led to your account being charged-off

  • Tax implications

    • if you settle your debt after a charge-off, you will be issued a 1099-C form from the creditor as long as the amount paid to the creditor or collector includes a savings off the balance of $600. ​

    • the difference between what you owed and what you settled for may be considered a taxable income

  • DON'T IGNORE A CHARGE-OFF