I recently had an old charge-off debt change its last reported to a more accurate date and change from closed to open debt and I haven’t used the card in 4 years or dispute the debt even. My score dropped by 135 points. Is this considered re-aging or can a charge-off be reported as open on credit reports?
-Reader Question
Can a charge-off account be reported as open?
No, a charge-off account cannot be reported as open. A charge-off occurs when a creditor determines that a debt is unlikely to be collected and writes it off as a loss. Typically, this happens when an account becomes severely delinquent, usually after 180 days of non-payment.
Once a charge-off occurs, the account is usually closed, and the creditor may sell or transfer the debt to a collection agency. It would not be reported as an open account because it’s now considered closed by the creditor.
The status of the account is updated to “charged off” or “written off” to reflect that it is no longer an active debt. When creditors report charge-off dates or a collection agency reports a date when the account was acquired, these actions are not considered re-aging an account.
What happens to credit scores when a charge-off reports as open?
Charge-off accounts can kill your credit scores. However, once a charge-off has aged, it’s likely to have diminishing effects on your scores, especially if you’ve been building positive credit.
Now fast-forward a few years and suddenly that charge-off status changes from “closed” to “open” then there will likely be a dramatic drop in your credit scores.
So if you notice that a charge-off account is being reported as open, you should dispute the error with the credit reporting agency and the creditor. It’s important to take action to protect your credit and ensure that your credit report is accurate. Plus, a charge-off with an open status means credit utilization (amounts owed) shoots up. High credit utilization causes lower credit scores.
Collection agencies can report an open account
When an original creditor sells or transfer a charged-off account to a collection agency, the collection agency can report the “open” date they received the account. Collection accounts can be reported with an “open” status until the debt is paid or the collection agency’s authority to seek payment is terminated.
What’s worse is that some collection agencies update collection accounts monthly. Sometimes this is done to inflict continuous pain on credit scores to encourage payment of the debt.
How does a charge-off account affect your credit score?
A charge-off account can have a significant negative impact on credit scores. It indicates that you have not paid your debts as agreed and that the creditor has given up on collecting the debt.
This can lower your credit score by up to 100 points or more.
Additionally, the charge-off will remain on your credit reports for seven years from the date of the first missed payment, which can make it difficult to obtain credit in the future. It’s important to take steps to address charge-off accounts and improve your credit score.
What steps can protect your credit from charge-offs?
If you have a charge-off account on your credit report, there are steps you can take to protect your credit.
- First, you can dispute any inaccuracies on your credit report with the credit bureaus. If the charge-off account is reported as open, you can provide evidence that the account has been charged off and should be reported as such.
- Second, you can also negotiate with the creditor to settle the debt or set up a payment plan to pay off the debt.
- Finally, you can work to improve your credit score by making on-time payments, keeping your credit utilization low, and avoiding new credit applications.
How can you dispute a charge-off account
Disputing a charge off account on your credit report involves contacting the credit bureaus and providing evidence that the account has been charged off and should report as “closed.”
Other inaccuracies in the reporting of the charged-off account can also be disputed such as incorrect dates or amounts. The credit bureaus are required to investigate your dispute and correct any errors within 30 days.
More About Collection Agencies
- Settle Debt for Pennies on the Dollar
Once a debt is sold to a collection agency you have a chance to settle the debt for a lesser amount, often pennies on the dollar. - Pay for Delete Agreement
Thinking about paying a collection account? Your credit scores may not improve unless you get the collection account deleted with a pay for delete agreement. - How To Deal With Debt Collectors
17 Tips to Deal with Debt Collectors Like: Stay calm, stay off the phone, know your rights and request proof of debt. - What is Debt Validation
Debt validation lets you question the validity of a debt.
