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Paid charge-offs better for your credit

Steve Bucciq_v2.gifDear Debt Adviser,
Hello, I have a few charge-offs on my credit report. They have been paid in full for almost a year now. Can (the credit bureaus) keep them on my credit report or are they supposed to change it? Also, what can I do to fix this to get my credit score up? Thank you.
-- Rachel

a_v2.gifDear Rachel,
I'm glad that you wrote to me. I receive a lot of mail about the pluses and minuses of paying charge-offs and their impact on a person's credit. First, congratulations on paying off your debt. It is never easy to pay off a debt, especially one that was old enough to reach the charge-off stage. For my readers who don't know the industry jargon, a charge-off is a debt that is usually overdue by 120 to 180 days. Once a bill has gone unpaid for that long, the accountants require that the company no longer count the money you owe as an asset. They write off the debt so it's no longer on their balance sheet. The bill is still owed and collections continue, but the debt is now referred to as "charged off."

Now to your question regarding your charge-offs and your credit report. You paid them in full, so that should be noted for those accounts on your credit report. Get a free copy of your credit report at You are entitled to a free report each year from each of the three bureaus at this Web site. If the accounts are not listed as paid in full, you should dispute the item with the credit bureau that is reporting it incorrectly. You can file a dispute online at all three major bureaus. Unfortunately, if the charge-offs are listed correctly as paid charge-offs, there is nothing else you can do. Correct negative information will stay on your credit report for seven years from the first date of delinquency that resulted in the charge-off and cannot be removed.

So, even though your paid charge-offs will remain on your credit report for seven years from the date of first delinquency, you have improved your credit. Originally, your debts were listed as unpaid charge-offs. From a credit scoring standpoint, there is not a big difference between a paid or unpaid charge-off. However, from the point of view of a lender considering you for a loan or an employer reviewing your credit report as part of the hiring or promotion process, accounts listed as paid can make a big difference.

You mention that it has been a year since you paid the charged-off accounts in full. If you have been adding positive information to your report, paying all other accounts on time and as agreed, you are well on your way to rebuilding your credit score. The reason is that most interested parties are more concerned with your most recent credit history -- the last two years or so. The older history will not carry as much weight as it might if it were newer.

Here are some tips to help you improve your credit score:

  • Make sure you are not late on any of your credit obligations moving forward.
  • Keep your credit card balances as low as possible or pay them off each month.
  • Consider adding different types of credit, such as an installment loan, to show you can handle fixed and variable payments.

For more tips on rebuilding your score, go to the FICO Web site. It has great information and a consumer blog that many find helpful.

Good luck!

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

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