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Banks don’t forget charge-offs

By Janna Herron ·
Tuesday, August 7, 2012
Posted: 3 pm ET

You may not realize, but I also moonlight as Bankrate's Credit Card Adviser, answering readers' questions about credit cards, card debt, credit scores and credit reports. Lately, several readers have found that credit card charge-offs can haunt them, even a decade later.

One reader applied for a credit card at an issuer and was initially given a $20,000 credit limit. The limit then was revised down to $5,000 after the issuer saw the reader had an account that was written off 15 years earlier in 1997. The reader contends that his credit history has been spotless since then and wonders if the issuer can do that.

The sad fact is they can. And issuers do it all the time.

As you know, negative information on credit reports falls off after seven years, except for bankruptcies, which take 10 years to clear your credit files under the Fair Credit Reporting Act. But no federal act erases the computer memories at banks.

Many lenders keep historical records of charge-offs, accounts that have been written off as uncollectible and often sold to third-party debt collectors. As a policy, many banks won't extend a credit card or even another loan to anyone who has had a charged-off account in the past, even if it was more than 10 years ago. In this reader's case, the penalty for the charged-off account was a lower credit limit.

Of course, this reader may want to consider a new credit card issuer, one he's had no prior relationship with. That issuer will only be privy to what is in his credit files and, maybe he will qualify for a larger credit limit based solely on his credit history of the past seven to 10 years. (Be careful of banks that acquired other banks. They may have historical records on the previous bank's customers.)

Have you run into similar trouble with an issuer relationship gone bad? Share it here. Also, if you have any credit card or credit questions, consider writing into the Credit Card Adviser here.

Follow me on Twitter: @JannaHerron

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