Often, the language used on credit reports can be confusing to consumers. Reversal is one of those somewhat confusing terms. Let’s take a closer look at credit card fees and what they mean for your credit report and score.
What are credit card charges?
A write-off is a debt that has remained outstanding for a sufficient period of time (usually around 180 days) and the creditor has given up trying to recover it. At that point, the account counts as an asset on the creditor’s balance sheet.
If it is deemed irrecoverable, it can no longer be considered an asset and is “written off”. While it may sound like they forgive you your debt, it isn’t. Depreciation is purely an accounting function that applies only to a company’s balance sheet, not your debt. You still owe bills and they still want you to pay.
How charges affect your credit score
In a word, not good. By its very nature, a write-off means that you haven’t paid your bills.
Payment history is the most influential factor in your FICO score, accounting for 35% of your overall score. Fees are usually charged after about six months of non-payment. So, for each month that the account continues to lag, your score will take another hit. By the time the charge occurs, your credit score will be severely damaged (second only to bankruptcy). Once you get past 180 days, recharging can do a lot of damage — even if you’re getting good results in the first place.
Do you still need to pay off debts that have been written off?
Yes. Once the account is collected, your debt will likely be passed on to a debt collector. In this case, your credit report will show a zero balance at the time of the charge, possibly with a “sold to” or “transferred to” mark and the name of the collection agency. They also have a new row called “Collections” that shows the balance due, “Transferred from” or “Sold to” on the account, and the name of the collecting institution.
Let’s be blunt: a debit balance doesn’t relieve you of your payment obligations. It may change what you have to pay, but it will not eliminate your debt or expenses. Also, interest may still accrue.
As long as there is an amount under the write-off item, you can contact the original creditor to make payment arrangements. But you may need to work with the collector once it’s moved into the collection. Also, be aware that after write-off, the debt will remain on your credit report for seven years from the date of the original or first default, regardless of whether you repaid it or not.
The same applies to collections, which are considered a loan extension between you and the original creditor and are removed at the same time after seven years. Some potential lenders will be more in favor of the write-off symbol – a good reason to find a way to pay off your debt. No matter what, you will still owe money.
You should know that both FICO 9 and VantageScore 3.0 ignore paid collections in their algorithms. However, you cannot rely on this as many lenders are still using the old scoring model.
Can I still get a credit card after paying the fee?
You may still get a credit card after being charged, but you may get a higher interest rate and your options may be limited depending on your low score.
There is no law requiring creditors to give you credit. Each lender will look at your situation from its own perspective and risk tolerance. What they offer you – if anything – is entirely up to them.
If all else fails, you can apply for a secured credit card to get back into the credit card game. These cards look and work like any other credit card, but they’re easier to get because you deposit cash up front as security. If you must go this route, be sure to choose a card that can be reported to the credit bureaus so your efforts to improve your credit score will be recorded.
How to recover from credit score damage
As with everything involving credit reports and scores, having a positive record after you’ve done some damage is the best way to rebuild your credit. The first is paying all bills on time every time. I strongly recommend that you find a way to repay any of your expenses. Even if it goes against you for a while, future lenders will see that you have worked hard to get it right.
Also, monitor credit card usage for any accounts you open and work to keep your credit card usage below 30%. The lower you can go, the better your score will be. Don’t close old accounts unless you have to.
Остаточний результат
If possible, you should avoid direct debits and the resulting collections. If you need help paying your credit card bill, feel free to contact your creditor and ask about the hardship program. While this is usually a short-term solution, it may be the answer that saves you from being charged in the future.
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