A discharge is a debt that has not been continuously paid for a long enough time, usually about 180 days, and that the creditor has given up trying to collect.
When the debt is considered uncollectible. While that sounds like they’ve written off your debt, that’s not the case. Write-off is purely an accounting function that applies only to the company’s balance sheet, not debt. You still owe the bill and they still expect you to pay it.
Cancellations mean you haven’t paid your bills. Payment history is the most influential factor in your FICO Score, accounting for 35 percent of your total credit score.
So for every month the account gets further behind, your score takes another hit. By the time a discharge occurs, your credit score will be in significant damage (second only to bankruptcy). Once you cross that day 180, the cancel deals major damage, even if you had a good score.
Once an account is discharged, your debt will likely be turned over to a debt collector. If that happens, your credit report will show a zero balance at discharge, probably with a note that says “sold to” or “transferred to” and the name of the collection agency.
You’ll also have a new line called “collections” that shows the balance due, a note on the account that says “transferred from” or “sold to,” and the name of the collection agency.
A canceled balance does not relieve you of your responsibility to pay. You can change who you have to pay, but it doesn’t erase your debt or fees. In addition, interest may continue to accrue.
As long as there is an amount listed on the payoff, you can contact the original creditor to make payment arrangements. But once you move on to collections, you’ll likely have to work with the debt collector.
Also, you should know that once a discharge occurs, the debt will remain on your credit report for seven years after the original or first delinquency date, whether or not you pay it off.
You may still be able to get a credit card after a charge-off, but you may receive a higher interest rate and your options may be limited depending on how low your score is.
If all else fails, you can apply for a secured credit card to get back in the credit card game.
These cards look and work just like any other credit card, but they’re easier to get because you put up a cash deposit as collateral up front.
If you must go this route, be sure to choose a card that reports to the credit reporting agencies so your efforts to improve your creditworthiness will be noticed.
To rebuild your credit, start by paying all your bills on time, every time. You need to find a way to pay off any charge-offs you have, so future lenders will see that you’ve been working to fix it.
Also, keep an eye on your credit card usage on any accounts you still have open and work to reduce your credit usage below 30 percent. The lower you can go, the better for your score. And don’t close old accounts unless you have to.
If possible, you should avoid cancellations and resulting charges. If you need help paying your credit card bill, don’t wait to contact your creditor and ask about a hardship program. Although it is usually a short-term solution, it could be the answer that will prevent you from facing cancellation in the future.
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