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Credit Education > Credit Score > The Troubles with Collections and Charge- offs

The Troubles with Collections and Charge- offs

By Janet Lacey
Published: Tuesday, March 16th, 2010

Creditors can find it hard to get payments from their borrowers. There are cases where creditors are left with no other choice but to get the help of collection agencies and even declared the unpaid credit accounts as charge- offs. Nothing good will come out of these two extreme cases of delinquent payments. The borrower will take the most negative impacts if he or she will have a credit history accounted with such. A single entry of either charge- off or collection will make the credit worthiness of the individual worsen by lowering his or her credit score due to negative credit history information found in his or her reports.

Collections are those unpaid payments that the creditors gave up on collecting and were forwarded to a collection agency or CA. Most of the time the creditors have their own collection agency, but there are still those who get the collection services from other private firms. The borrower will have a hard time avoiding these collection agencies; they are the best in persistently getting payments. These CAs would accept even if the payments are partial and incomplete. Managing debt in the presence of collection agencies can prove to be a hard job, simply because collecting payments is not the only task of these agencies. Many CAs simply accept partial payments of any amount to re- age the debt and keep it within the statute of limitations.

Charge-offs is also called as profits- and – loss accounts. These are the existing unpaid balances that the creditor has lost all taste to collect. Charge- offs usually result from stubborn borrowers and long term unpaid balances. These are defaulted losses that the creditors have to take after risking in lending to the borrowers. A charge- off will appear on the credit report of the borrower as a negative information which will last at least seven years.

The dilemma of most borrowers is whether they will pay their unpaid balances if it has already been forwarded to collection agencies. The dilemma is simple, paying it or not paying it can cause the same problem. The borrower will have hard time borrowing money if his or her unpaid balances will be forwarded to collection agencies. Lenders and creditors consider a collection entry in the credit report of their borrower as an indicator of bad risk debt. Unpaid collection account will certainly prevent borrowers from borrowing more from other creditors; the borrower in a way is financially paralyzed. On the other hand, some creditors and lenders automatically reject borrowers with collection entries regardless whether they are paid or not.

To avoid this dilemma, it is advisable that borrowers should pay their debts even if it is through collection agencies. Unpaid bills before being defaulted can be forwarded by creditors as a legal law suit. If the borrower will be proven guilty, he or she has to endure additional negative information in his or her report for seven years. Fortunately, some creditors are amendable for credit repair, given that the borrower will exert effort to pay off his or her existing debts. Creditors after seeing the efforts of the borrowers can be open to negotiate a deletion of the collection entry of their borrowers.

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