What happens when you don’t pay your credit card?
When a person doesn’t make payment on a credit card for six months, it becomes a “terminal delinquency.” At that point, the creditor may charge it off and try to collect money via their own bad debt department, or they can sell the account to a collection agency.
Depending on either of those actions, it becomes a charge-off or a collection on the credit report.
Points are deducted from your credit score based on the date the account went delinquent. The more recent the Date of Last Activity, the more it hurts your score.
Here’s what can happen.
If Visa sells a charged off account to Paradox Collections, Visa is supposed to change the balance to $0, because you now owe payment to Paradox. If Visa still shows an open balance of $1,500 (or whatever sum), that is a violation of the Fair and Accurate Credit Reporting Act. You no longer owe Visa; you now owe Paradox.
If Visa shows the charge-off with a $0 balance and Paradox shows the collection with a $1,500 balance, then it is posted properly. Your score is docked twice for the two negative entries on your report.
But hold on! Paradox might show your balance as $1,700, because they have added $200 in fees. They are within their legal rights to add interest rate charges and fees, per the state law.
The balance may keep increasing each month if state law allows it.
And it could get worse!
Paradox might file a motion in court to claw money right out of your bank account, or to garnish funds straight out of your paycheck.
For doing this legal work, they might add $500 in attorney fees. (Again, per state law. In Washington state, it happens all the time.)
As you can tell, the debt can snowball into a avalanche.
You must never ignore a bill or a debt that you owe.
If you move to another address and don’t receive the bill and forget all about it, that does not excuse you or exempt you. You are responsible to inform your creditors of your new address and to keep abreast of your financial obligations.
If you were on auto-pay and close the bank account and move to a credit union, so that the creditor doesn’t receive payment, the delinquency will be on your credit report. You don’t get to forget to make payments.
If you go on vacation or get married or sail off to Survivor Figi, you don’t get to skip payment.
The credit card companies are not your nice grandma. They won’t give you grace and forgiveness (except in rare circumstance, and don’t count on that).
If you want to get ahead in life, you must take responsibility for tracking all your debts and pay on time. Have a savings account as a safety net in case you’re out of work for a period of time.
Live within your means. Don’t use your credit card to buy stuff you can’t afford to pay with cash.
Don’t go on so-called retail therapy spending sprees if you get depressed. If you do, you will be digging yourself into a deeper depression later.
Dear Nice Person…
I hope this post doesn’t sound too harsh. Please take it as helpful advice from a licensed mortgage advocate who cares about helping people get ahead credit-wise. It’s a good feeling to have A+ credit and receive the respect from everyone you do business with.
Make that your goal, and you will get there. If you had mistakes in the past, dust yourself off and move forward. America loves a come-back!
Stage your own come-back and build the awesome credit report you deserve.
Pick up a copy of Build and Protect Your Credit Like the Pros here.
This week the big three reporting agencies TransUnion, Equifax and
Experian spent six hours giving testimony to Congress. They were asked questions regarding every aspect of their companies ranging from dispute resolution practices, cyber-security and the fact they have no other competition in their space.
With Maxine Waters, a long time consumer advocate at the helm of the financial services committee, you can bet the farm that this is not going to be a comfortable year for the bureaus.
Waters has already introduced a bill that would require yet another overhaul of the credit reporting system as well as amendments to the Fair Credit Reporting Act. Subscribe for updated information as it becomes available.
Many thanks to Chad Kusner, Credit Repair Resources LLC, for this information. CCCR offers a credit report analysis and consultation service for people who need credit advice without a full credit repair. More info here.
Build and Protect Your Credit Like the Pros guides you to achieving A+ credit in the shortest time possible.
Having a top tier credit score saves you money on insurance premiums, interest rates, and gains you respect in the community.
“Must have” for every American. Available on Amazon here.
What you don’t know about collections can hurt your credit score.
Here are two facts most people don’t know:
1) The balance does not affect your credit score.
Whether you owe $100 or $10,000, it makes no difference in your credit score. A collection is a collection is a collection. Why?
Because a large balance might indicate a person has a high income; whereas, a small balance might indicate a person had a low credit card limit and therefore has a low income. Since it is illegal to consider income for credit scoring, the credit reporting agencies are barred from making a difference in score due to the balance.
This is important to know, because if you’re thinking your score will go up as you pay down the balance, you are in for a disappointment. The only way you will get your score to go up is by the collection aging older and older, until eventually it is off your report. (Unless you get it removed early.)
2) Paying off a collection will lower your credit score.
This is counter-intuitive and unfair. Nevertheless, that is the way the system is set up. As per above, your score cannot go up by lowering your balance on a collection account. On top of that, when you make a payment it updates the “Date of Last Activity” (DLA) to current, and that reduces your score.
A lot of good people try to do the right thing by paying off an old collection account — and then they are penalized for it!
The Best Way to Handle a Collection Account
If your collection account is old, then let it age off.
If your collection account is medical or less than $2,000, then you will not be required to pay it off in order to get approved for a home loan.
If your collection account is large and/or the collector is contacting you for payment, then negotiate a settlement with the stipulation that it will be removed from your credit report when it has been paid in full as agreed.
If you receive notice of legal action, do not ignore it! Work out a settlement, or if necessary, go to the court hearing and explain your situation. If you blow off a court hearing, then you automatically lose by default, so that is the worst thing you could do.
There are reputable, licensed credit repair companies that can help you with negotiations and legal issues. I do not recommend attorneys or lawyers (especially if they advertise all over the Internet–those are usually the worst). I recommend credit repair specialists who have over 10 years’ experience, because, in my opinion, they work faster, better, efficiently, and get better results.
Thank you for reading and passing on this info to others via shares.
New credit leniency and protections for our highly respected U.S. Veterans have been signed into law. Here are the important points to know:
- Medical debts/collections incurred cannot be reported to a veteran’s credit report for one full year from the time the medical service was provided.
- If any medical debt has been reported as delinquent, a collection, or a charge-off, it must be removed from the veterans credit report once it has been satisfied.
- If a medical debt is in the process of being paid by the VA, and the Veteran provides the proper documentation to the credit bureaus, it must be removed from their credit report.
- Veterans on active duty are to receive free credit monitoring that will alert them to any material changes on their credit reports.
Thanks to the Economic Growth, Regulatory Relief and Consumer Protection Act initiated by Senator Mike Crapo (R-ID) and signed into law May 2018.
Thanks to Credit Repair Resources, LLC, for this information.
Thanks to every United States Veteran and Service Member for protecting our great nation.
Please pass on this important information to every U.S. Veteran, because many have medical accounts and are unaware of this law. Thank you.
Elisabeth is best known for her work on Good Morning America, The Washington Post and Dr. Oz.
Easy Money is full of surprising ways to MAKE more, SAVE more and find YOUR unclaimed money.
I shared my story about the benefits of improving your credit score . Let me know what you think of my episode!
As we celebrate living in the Land of the Free and Home of the Brave, it occurred to me that being strapped with bad credit is the opposite of freedom. When you can’t enjoy life because you’ve got creditors hounding you to pay bills, that is not freedom. When you can’t get a decent interest rate on a car loan or decent insurance premiums because of a low credit score, that is not fun.
I urge you to take control of your credit and finances. No matter where you are today, you can make a plan for your future. It might not happen overnight, it might take some self-discipline, and some work — but that is what our legacy is all about.
Our forefathers and foremothers — all of them, not matter where they came from, whether rich or poor — wanted to be free. Let’s grab hold of that spirit of determination and pursue whatever it is that we need to do in order to make tomorrow better.
Credit repair is legal and ethical, when it is done properly. Others are repairing their credit and restoring their good name, and you can, too.
Harold from Indiana wrote this is an email (and gave permission to share it):
My score has gone up 89 points in a 2 month period. After mailing the letters it didn’t take long for them to respond, maybe 2 weeks. I will continue to work at improving my credit. Once again your book is amazing and it truly works.
He is talking about Repair Your Credit Like the Pros: How credit attorneys and certified consultants legally delete bad credit and restore your good name. You can get more details here.
Have a happy and safe Fourth of July! God bless America!
“My credit report shows several negative accounts that I need to dispute. Can I include them all in one letter?”
This is a common question, and I go into detail about how the professional credit repair specialists handle it in Repair Your Credit Like the Pros. But let’s talk about common sense.
If your credit is mixed up with another person’s credit, such as your name is Charles Moon, Jr. and Charles Moon Sr.’s credit is showing up on your report, then you should include all of Sr.’s credit accounts that do not belong to you in one letter. Also include two pieces of ID showing you are Jr.
If you were in the hospital getting an appendectomy and some of the bills went into collections because your insurance company messed up, then include all of those collection accounts in one letter, because they are all related to one event.
So, if the erroneous negative accounts are all related, include them in one letter — and if possible, send verification along with it.
On the other hand, if your report shows a collection account from Comcast dated 2013, and a collection account from Sears dated 2016, then it’s clear that those two accounts are not related to one another. Therefore, you must dispute them separately. For each, explain why it is incorrect and request that it be removed from your credit report. You can use a handy Credit Investigation Request Form that goes with the book if you like. It’s a good idea to hand write a short explanation in the white space. Or, if more appropriate, you can use a letter.
Some people have asked me what I think about the 609 template letters. I know a lot of people use them, and that’s one problem. They are over-used. Another problem is that they sound like legalese, not like something an honest citizen would write about his/her situation.
What’s more, the top credit repair experts that I interviewed and have worked with do not use those letters. The book is called Repair Your Credit Like the Pros.
Credit repair is a big topic and it is both simple and complex. It’s too much for a blog post, but I hope that using common sense will make sense to you for your situation. For more detailed instruction, please see the book.
For the record, I do not do credit repair, nor do I give credit advice by email. I am a licensed mortgage loan officer in California and Washington; and as all mortgage professionals do, I have helped my clients get approved for a home loan.
Written by Mr. F. McGehee Woolf, mortgage loan manager, licensed in Louisiana and North Carolina (NMLS 89625):
As a client of ours over the years you may recall the importance of having acceptable credit as a primary consideration in the home buying process. Many fall below the acceptable ranges to be approved. This can be very demoralizing, and they typically consider some unattractive options, such as:
- Listen to a friend and dispute all the negative credit information.
- Pay a company or an attorney to rehabilitate the credit which often delivers mixed results.
- Do nothing and keep renting.
Since people look to me for guidance I wanted to learn more about how someone could help himself or herself in this frustrating circumstance. I recently read the book by Carolyn Warren titled Repair Your Credit Like the Pros. It’s an easy read loaded with excellent direction on what to do in almost every conceivable circumstance. Ms. Warren will even provide you with the letter templates you need to be successful.
I contacted Ms. Warren asking for her permission for me to notify you of the availability of her book, and she
graciously granted it. I wholeheartedly endorse it. You can click on the link below and it will take you to the Amazon page where you can purchase her book for $13.49. With her book and some focused effort, most people will be able to get their credit in order.
Best of luck and let me know if I can help you in any way.
F McGehee Woolf, Loan Production Manager NMLS No. 89625
For loans in North Carolina and Louisiana, visit website here. Office: 225.767.5355
“Chase not only removed all my late payments but also refunded over $350 in fees!” ~~ Sarah S., Florida
Sarah had moved several times and in the process, she’d unintentionally forgotten about the Chase account. Easy to do when no billing statement comes! By the time she checked her credit report, late payments had already posted and her score had been docked.
Time to spring into action! Sarah picked up a copy of Repair Your Credit Like the Pros: How credit attorneys and certified consultants legally delete bad credit and restore your good name. See here.
After reading Chapter 15, she called Chase and asked to speak with a supervisor in charge. She opened the line of communication in a professional manner. She explained that her credit is very important to her, and she would not have missed a payment had she received a bill. She told the truth. By the end of the conversation, the supervisor said:
“I have determined that you were not receiving your statements”; and therefore, you “couldn’t have known you had a bill.”
As a result, both the late payment record and the late fees were removed.
In a follow-up email, Sarah wrote (and gave me permission to use on my blog):
I wanted to write to you with a heart of gratitude! Thank you so much for writing your credit repair book. Within two
months of starting the credit repair process and sending out first letters, my husband and I have raised our score over 100 points! We are pre-approved to buy our first home. God is good.
Thank you again,
Help is coming for people who are drowning in collections and debt. And for people working on fixing their credit.
The Consumer Financial Protection Bureau (CFPB) is going through certain proposals to overhaul the debt collection industry. The idea is to stop abuse and make sure collectors are following proper protocol. But in this overhaul, there is good news for folks who are suffering from charge offs or collections on their credit.
First, the CFPB is going to put a new limit on how often the collector can contact the person owing money. They want to stop the harassment that sometimes happens.
Second, they will be required to disclose more details, which will make it easier for people to dispute inaccuracies.
Third — and this is a big one — collectors will not be able to pursue collecting money during the dispute process without providing sufficient evidence.
Furthermore, these rules also apply if the account is sold or transferred to another collection company.
As I said, this is all being reviewed by the CFPB now. Stay tuned for more information as it becomes available by subscribing to this blog (on the right side). And please pass on this information to others who are struggling with debt, imperfect credit, or who are professionals in the mortgage or real estate industry.
Many thanks to photographer Ian Espinosa for the free use of his photo.