The Truth of Credit

photo by RichSeattle

There seems to be a lot of confusion on this topic. I have read in numerous forums and come across Yahoo Answers where people continually ask this same question. So today I would like to give you the major difference between paying on a collection account and paying an account before charge-off.

• Paying Before Charge-off - Depending on the contract you have, the original creditor you owe has a specified amount of time to try to collect the debt before it is sent to a third party collector. For most credit card companies this will be 6 months. During this time the payments you make to the original creditor will be acknowledged on your credit report.  However, if you miss payments, this will also be reported to the credit bureau, resulting in lower credit scores. The main difference is that if you are to “catch-up” the payments during this 6 month period and get back on track, your credit score will reflect that. Unfortunately, it will also show that you were behind a few months.

• Collection Accounts - Once an account goes from the original creditor to the third party collector, this is called a charge-off. Your credit card will reflect that until the balance is paid. To put this in layman’s terms, you won’t get any credit for the payments you are making until the account is fully paid off. The account will sit on your credit report as a charge-off until it’s paid or settled. Still confused?

Should you pay on a Collection account? Yes, but only if there is no doubt that you owe the debt. Depending on how much your credit means to you, your options are the following:

1. Pay the Debt in Full - This may not be the best thing for you short-term but long-term, this is very smart.
2. Settlement – If you’re short on cash but want this debt off your back, this is a valid.
3. Payments – By setting up a payment plan with the collector, the debt will get smaller, but again you will see no benefit until the full debt is paid.

This is a very general advice on what you should do. Only you know what your finances can afford. Don’t get pushed around; make an educated decision and vow never to get yourself in this situation again.

Related posts:

1. Top 10 Phrases Debt Collectors Will Use