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Credit Card Companies Do Not Have to Validate Debt

Credit card companies do not have to validate debtQuestion: After getting ready to apply for a mortgage, I discovered a “charge-off account” on a credit card account my now ex-husband opened and charged $400 over the credit limit. I have disputed the debt and requested documentation twice and they keep responding that they are not a collection agency so do not have to reply. Is this correct?

It is past the SOL now. I have written to the credit reporting agencies that they have decided to remain silent and refuse to comply. Are these the correct tactics?  It is killing my credit score by showing a charge off and a 110% of my revolving credit amount.  Will my tactics get it removed from my reports.

Answer: Debt validation is a tool provided by the Fair Debt Collection Practices Act (FDCPA). Original creditors do not have to validate debt or respond to debt validation requests.

In fact, an original creditor does not have to comply with the Fair Debt Collection Practices Act at all. The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from you; and, allows for debt validation.

If you are requesting debt validation from an original creditor, they are correct in not responding to your requests. Only debt collectors, collection agencies and law firms in the business of collecting debts must comply with a debt validation request.

The debt being past the statute of limitations only means you can no longer be sued for the debt. A charge-off can remain on your credit reports for 7 years and has nothing to do with your states statute of limitations on debt.

A charge-off is merely an accounting procedure that requires the credit card company to move the account from an asset to a liability. I am sure they still desire the account be paid. If the account was not sold or transferred to a debt collector, any fees that were included in the cardholder agreement will be assessed on the account as long as a balance remains due on the account.

Even late and over-the-limit fees can be applied to the account if the total balance is more than the credit limit on the account. Also, interest charges as set forth in the cardholder agreement can be added to your account each month.

There are strategies you can engage to dispute a charge-off; however there is no guarantee they will work. Mainly, if you can find a factual error within the charge-off listing, dispute it and request a deletion; it may result in removal of the charge-off. Read this article to learn how to dispute a charge-off. But keep in mind, even if you manage to remove a charge-off it may be put back on your credit reports at a later date.

Another strategy is to contact the creditor and offer a settlement in exchange for a deletion of the item. You may need to grit your teeth and pay your ex-husband’s debt. If you are able to come to a settlement, any agreement should be done in writing and only be completed if the creditor agrees to delete the charge-off. The reason being is that paying a negative debt such as a charge-off will cause the date of last activity to be updated, making it look as though you have recent negative activity. A deletion of the account eliminates this dilemma.

The good news is that the older a negative item becomes, the less it weighs in calculating your credit score. Once a negative item is 48 months or older it is no longer being used to calculate your credit score; although when applying for a mortgage, most banks and lenders will want to see the negative account reflect “paid.”

The exception to this is when applying for an FHA loan. While lending criteria has gotten stricter with FHA loans, they still allow some flexibility. According to FHA, a disputed or collection account under $1,000 does not have to be paid in order to get approved for an FHA mortgage loan as long as the disputed or collection account shows on your credit report as aged two years from the date of last activity on your most recent credit report.

New borrowers are only required to have a minimum FICO score of 580 to qualify for FHA's 3.5% down payment program while new borrowers with less than a 580 FICO score will be required to put down at least 10%.

But your best best is to send a goodwill letter to the creditor; offering to pay the amount in exchange for a deletion from your credit report. If they do not agree to a deletion request a “paid” status.

Make sure you send your request to someone in a position to make a decision. You would be surprised how someone in an executive office will agree to a goodwill request. Include in your goodwill letter that you are trying to get a mortgage and the charge-off is hindering you from obtaining the best possible interest rates. Make your case to them and be ready to explain why the account ended up in charge-off status. The best of luck to you

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