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Rebuild Your Credit After a Collection or Charge-Off

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Two of the worst types of delinquencies are a collection and charge-off. Both events are the result of not paying a particular bill for several months. Because they indicate a significantly late payment (35% of your credit score), charge-offs and debt collections are terrible for your credit score. With some effort, you can overcome these.

Dispute wrongly reported collections or charge-offs. You can dispute inaccurate accounts with the credit bureaus. Send a letter letting the credit bureau know why the account is inaccurate and wait for a response. Hopefully, the error will be deleted the first time. If not, you can dispute the account directly with the business that listed it on your credit report.

Get a $0 balance. Here’s the thing: paying off a charge-off or collection balance won’t delete the item from your credit report and it won’t help your credit score. Once the blemish is there, the damage is done at least for the short-term. However, a paid balance is always better than an unpaid one, especially if you’re trying to get new credit or a major loan like a mortgage.

Before you pay, draft a pay for delete letter offering to pay the balance in full in exchange for having the item removed from your credit report. The creditor or collector may deny your claim but it’s worth a try.

Settling the debt is also an option, if your creditor agrees, but keep in mind your credit report will reflect that you settled the account. A settlement can also hurt your credit score.

Worst case, just pay the balance in full. Or, if it’s really old, like 6 or more years, you could just wait and let the account drop off your credit report. The credit reporting time limit for these types of delinquencies is seven years. For a charge-off, it’s 7 years plus 180 days from the date of the first delinquency.

Try sending a goodwill letter, if the account has already been paid. A goodwill letter is simply a request that the creditor or collector remove the account from your credit report out of goodwill. Briefly explain why you became so late and hope that whoever receives your letter is feeling generous that day.

Keep paying your other credit cards and loans on time. The best way to rebuild your credit after a blunder like a collection or charge-off is to get some positive information on your credit report. If you still have active credit cards or loans, continue paying them on time. The same thing goes for accounts that aren’t reported to the credit bureaus. These can also wind up on your credit report if you fall behind on your payments.

Get new credit in your name if you don’t already have it. You’ll have to open up new accounts if all your other accounts were charged-off or sent to collection. You may have already experienced the difficulty in getting credit with bad marks on your credit report. A select few credit card issuers offer credit cards for rebuilding credit. Alternatively, save up a few hundred dollars and open a secured credit card. Pay your account on time and you’ll get your security deposit back.

Give it some time. Little by little, your credit score will improve as you use your credit cards and pay on time every month. Be patient. You can wreck your credit score overnight, but you can’t rebuild it in as little time.

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