If you are preparing to purchase a house or a vehicle, you should closely examine your credit report and determine what you can do to improve your credit score. It’s advisable to begin this process at least 6 months in advance. If you have a spotty record from the past, it likely includes charge offs. Scorecrafters customers often want to know if it makes sense to payoff these debts now that they are in the hands of a debt collection agency. The short answer is not always yes.
A charge off on your credit report means the original creditor has determined the debt is unrecoverable and they have since sold it to a collections agency. For the collections agency, recouping the initial investment and making a profit is solely dependent on getting you to pay that debt. They will aggressively pursue this goal through phone calls, letters and recent reports indicate they are even utilizing social networking sites such as Facebook to contact debtors.
If you receive a settlement, a raise or other large cash inflow, you first need to determine if the collection agency is going to pursue obtaining a judgment against you. Keep in mind that the charge off is going to remain on your credit report for seven years, even if you pay it off. So unless the collection agency feels your debt is sizable enough to warrant the expense of them going to court to obtain a judgment, which will also stay on your record for seven years, it is not worthwhile to pay off a charged off debt.
The two key exceptions are if the debt collection agency is willing to delete the item from your credit report or if the amount is owed to a bank for overdraft charges. If you attempt to open a bank account in the future, you will likely be denied if a bank closed your previous account and you never paid the overdraft fees charged.
When you are trying to improve your credit score, pay charged off debt only if the creditor provides an agreement in writing that the item will be deleted from your credit report. Otherwise it will show you paid it off – but the impact on your credit score will be minimal at best. Also keep in mind that if the debt is slated to roll off your credit report within eighteen months, it is generally not worth spending your cash to pay it off. Your resources would be better used toward “newer” blemishes slated to stay on the credit report for several more years.
If you have concerns about items showing up on your credit report, contact Scorecrafters today. We can provide you a detailed analysis about your credit report and make recommendations about how you can improve your credit score.