Old Debt Elimination Will Help Repair Credit

If you have been struggling to pay credit card bills and other debts over the last few months and fell behind on payments, your credit is being negatively affected, requiring credit repair actions. All too often people who are behind find it too hard to catch up and bills end up at collection agencies, further damaging a weak credit score. The biggest credit repair mistake you can make is letting old debts hang around. Debt does not go away, it only get bigger. With fees, penalties, and the damage it is doing to your overall financial stability, it is essential to get back on track and face old debts.

When you fall behind on old debts and they are sent to collections, your credit report may reflect two statuses, one from the collection agency listed as ‘in collections’ and one from the original creditor listed as ‘charge off’. What matters most to any lender reviewing your credit report, is what the original credit reports to the credit bureaus. That information weighs more heavily on your FICO score than the information from the collections agency.

What is a Charge Off?

A charge off lets lenders know you did not meet the financial obligations with your original creditor and that you still owe a balance on the account. To handle charged off statuses, you need to go directly to the source – the original creditor – to settle the debt. When you can reasonably afford to pay the balance in full, or at least reach an agreement on a payment plan if allowed, you need to contact the creditor and pay the debt in full. Paying the debt with the collection agency will not necessarily help improve your credit score because the creditor will not be reporting non-action back to the credit bureaus, leaving a black mark remaining on your credit report.

You should not offer to settle with the creditor if you can afford to pay the full balance. By offering or accepting a settlement on your original balance, you can end up hurting your credit score even more. Paying less than you owe will be reporting back to your credit score as ‘settled’, again alerting lenders you did not live up to your financial obligation.

There may be an occasion where an original creditor will not accept anything but a payment in full and some will refuse to accept any payment once a file has been transferred to an attorney or a debt collection agent. In those cases, you will have to make some phone calls and talk to both the creditor and collection agent to see what options you have for satisfying the debt. Never ignore the debt because you feel it may be too difficult to eliminate.

Attacking Old Debts

Total debt elimination is the goal you’ll need to aim for if you wish to bring your credit score back up to par. Even if you have no immediate plans to seek financing, you still need to have decent credit for other services like car insurance, pre-employment checks, and renting apartments. You need to create a plan to eliminate all old, outstanding debts as soon as you can while you stay on top of existing bills.

You may need to find sources of supplemental income and start a savings plan to tackle all old debts with the original creditor. Some debtors choose to eliminate one debt at a time rather than make payments toward all past due debts. Part of your plan should include the amount it will take to satisfy all debts and how much you need to eliminate all old debts. Commitment is necessary to eliminate old debts. With every zero balanced account, your credit score will get a boost as time goes by. Make sure your creditors will report the payoff in full to the credit bureaus and be sure to get a confirmation letter that the debt has been paid in full.

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