Seven years. The Fair Credit Reporting Act (FCRA) clearly states the maximum amount of time charge offs can stay on your credit report is seven long, expensive, and often embarrassing years.
Keep in mind, it’ll typically take 180 days or about six months of delinquency and non payment, before your account is charged off. Once the lender does charge off your debt, at this point the seven year clock begins.
You’ll get slapped with a charge off on your credit report files, and this will drag your credit score down. And your original debt, will be sent to a collection agency.
This collection agency will also report negative information on your credit reports, damaging your credit score even further. Anthony Sprauve, a spokesman for FICO, says a collection listing on your credit reports can damage your score by up to 100 points.
Moreover it’s open knowledge the better credit you have, the more damage a ding like a charge off or collection will cause to your credit score. In other words, it’s a system created for you to fail. More on this in a bit.
With this collection agency, the same seven year time window from when your account was initially charged off applies. However you need to beware because one of the most common and often illegal debt collection tactics is to re-age consumer’s accounts. Obviously this allows them to continue collection efforts.
Which of course include the harassing phone calls, demanding letters, and nowadays even emails. If this first collection agency, which is often an in-house agency with credit card charge offs, is unable to collect payment they have the legal ability to resell your account to yet another collection agency.
This new agency will naturally begin contacting you, along with reporting more negative information on your credit reports. And eventually the most common result of unpaid collections are a lawsuit.
In other words, if you never pay this debt it’s very likely you’ll eventually be sued in a civil court. And look, there’s an abundance of late stage debt collectors that have legal eagle attorneys on staff, whose primary purpose is to file lawsuits.
This can result in a judgement against you. And that can potentially cause you wages to be garnished, liens placed against you and or your property, and even asset seizure. Please, investigate your local legislation as collection methods do vary by state.
The most frustrating part is a judgement on credit reports is virtually guaranteed to give you a very poor credit score. Not to mention you’re going to have multiple dings and blemishes all over your credit file, for items related to this account.
Should I Pay Charged Off Accounts?
Maybe. Naturally this depends on your exact situation, so let’s start at the top and begin by how to deal with debt collections. And this starts by not just paying off collections with the hope this is how to fix your credit score.
If you just pay, the only thing that changes is the status of the collection item on your credit reports, to a paid collection. This is still a derogatory, negative, and damaging item that’s guaranteed to give you a low credit score. FICO openly says this.
Listen, the Fair Debt Collection Practices Act (FDCPA) is another one of these alphabet soup laws to help you and all consumers. This legislation specifically grants us the right to request debt validation on any and all collection accounts.
This is a request we should make in writing, and send using certified mail with return receipt requested. We’re essentially saying to the collection agency, you first prove this is actually my debt, it’s legit, and everything’s on the up and up.
They’re required to respond by providing you documents and evidence showing this, including who the original creditor was. If they fail to do so, then you’re no longer legally responsible for the debt, and it should be removed from your credit reports.
The next step is to investigate the date of last activity on your account. This is relevant because of the statute of limitations which is a state law and does vary, so check your local listings.
The statute of limitations puts a time limit on how long you’re legally responsible for repayment of a debt. This applies to the overwhelming majority of types of consumer debt including charged off credit cards, utilities, health care, personal loans, retail, auto, virtually everything.
A few of the exceptions are federal defaulted student loans and federal taxes. The vast majority of types of consumer debt are regulated by this law. If the statute of limitations, which is generally around seven years, is expired then your legal obligation has ended.
They can still contact you for payment and even sue you. Should you find yourself a defendant in a lawsuit, the statute of limitations is a valid defense. You’d be shocked to hear how many illegal lawsuits are won every single day against consumers.
This is because most people are understandably intimidated, and as such skip their court date. In these cases, the evidence even fraudulent evidence isn’t even heard and the judge has to award a default judgement automatically.
Collection agencies know this! And they file lawsuits expecting consumers not to show up and defend themselves, and even illegal lawsuits. The most notable example of this is with Midland Funding LLC who had an employee testify to having fraudulently signed 200 to 400 affidavits per day.
Assuming you’re not a licensed criminal, or excuse me an attorney, the affidavit is what’s used as the evidence in court. It’s as egregious as planting a bloody glove.
Assuming you have a legit, and valid debt, and it’s within the statute of limitations the next step is to negotiate a settlement agreement. This should be to make a payment for less than your balance, and in exchange for them to agree to stop reporting your account information to the credit bureaus.
First, it’s wise to negotiate to pay off collections for just a fraction of the total balance. Frequently you can settle debts for anywhere as low as 15% up to 40% of the total.
In exchange for your payment, you must get them to agree to stop reporting your account information to the credit bureaus. Otherwise you’ll get smacked with that paid collection on your credit file.
Some folks would say you should instead demand a pay for delete. In other words, demand the collection agency delete any negative information they’ve reported about your account. You can try this approach, but it’s very unlikely to be successful.
Instead, insist they only agree to stop reporting your account information. It’s a subtle change, but makes all the difference. They will agree, maybe reluctantly, to stop reporting your account information.
How To Remove Charge Offs From Credit Report
In this final section, we’re looking at how to remove charge offs from credit report files. This method is effective for paid and unpaid charge offs, and for removing the debt collection item we’ve been discussing.
We’re going to have to use more of your consumer rights under the FCRA. This legislation allows us to challenge and dispute credit report items, so long as we believe they’re inaccurate, misleading, or made in error.
Naturally we’re going to file a credit report dispute for the charge off item, and any related collection items on your credit file. Once the credit bureaus get our dispute and find it valid, they’re required to investigate.
During which they’ll contact the collection agency in the earlier example, or the credit card company that initially charged off your account. In other words, they’ll contact the company reporting the information about your account to verify it.
If the account can’t be verified, in accordance with the FCRA the credit bureaus must remove that item from your credit report. Using our collection example, once you made payment, because the collection agency agreed to stop reporting your account information they wouldn’t verify it when the credit bureaus investigate.
Take note, if you’re disputing a charge off where the original lender has already sold the collection rights to your account, it’s a virtual guarantee the charge off will be removed. For example, with a charged off credit card, once the bank or issuer charges off the account, they next send it to a collection agency.
This first agency is often in house. However after roughly another six months, this collection agency will sell your account to yet another collection agency. Once this happens your odds of account verification plummet.
To clarify, once the original lender releases their rights to your account, it’s almost guaranteed they won’t verify your account during a credit bureau investigation. This is because it only costs them money, and there’s no incentive or profit for them to earn.
And as you know, if your charge off is not verified when the credit bureaus investigate, the item must be removed. This is how to clear credit history dings, blemishes, and negative items.
Look, your credit score is a lot like your Grade Point Average (GPA) in glory school days past. If you’re failing a class, even if it’s The Art of Walking (a real college course offered at a private college in Kentucky, for no less than $34,000 per year) it’s still going to screw up your GPA.
The dings, blemishes, and any derogatory items on your credit reports is exactly like failing The Art of Walking. It’s going to screw up your credit score in the exact same fashion.
We must clear credit history to most effectively and efficiently fix your credit score. We encourage our members to consider professional, legal, and legitimate credit repair companies to help.
Because in just 2016 alone, over 9 million negative items were removed from consumers credit reports. You see, seven years is the maximum amount of time negative information can stay on your credit report.
But, there is no minimum amount of time any negative item must remain on your credit reports. Take action today and get started on the path to financial freedom, and earning the credit score you truly deserve.
Get a free credit consultation with a certified FICO professional by calling toll-free 1-877-418-7596. And for more tips, strategies, and techniques for fixing credit with Dan Willis, sign up for our free newsletter and join our congregation.
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