Double Whammy of a Charge-Off and a Collection Account Reporting

Your site has been so helpful, I have a question…I have an account showing as BOTH a charge off AND a collection.

I borrowed funds for my moms funeral after my dad lied about paying for the services, I had to get a loan and that was through one company, then after a lot of life stuff happened and I couldn’t make payments, it was charged off. I see it was apparently sold to another company and that has been showing as a collection.

Doesn’t it have to be either/or…how can the same money be shown as charged off and as a collection? What do I do to get this straightened out and removed as a collection if it is listed as a charge off already? Thanks in advance for your reply!

Response: When you’re struggling with debt, you may want to zone out and not deal with your finances…Don’t do it!

It’s imperative that you deal with debt straight on even though life may be throwing you curve balls.

Unpaid debt just doesn’t disappear. In fact, not dealing with it can turn into a double whammy on your credit reports.

By that I mean you could end up with a charge-off notation and a collection notation for the one unpaid debt. And, that sounds exactly like your situation.

Double Whammy of a Charge-Off and a Collection Account

When you fail to make payments on your loan, the lender can declare your debt uncollectable. This is referred to as a debt charge-off. Charging-off a debt allows the lender to report it as a loss and reduce its tax liability.

But it does not eliminate your obligation to pay the debt. The lender can report the debt as a charge-off to the credit bureaus.

The other half of a charge-off is the lender’s right to sell the debt to a collection agency. It will typically sell the debt for pennies on the dollar to a collection agency. This means that the collection agency can now come after you to collect the debt.

Collection agencies make money by squeezing more payments out of you than what they paid for the debt. As a result, most collection agencies are notorious for repeatedly calling and pursuing borrowers to collect their debts.

It is legal for both the original lender and the collection agency to report the unpaid debt to the credit bureaus as long as the collection is the only entry that shows a balance. The original lender must report the balance as ZERO if they sold the account to the collection agency.

Unfortunately, you end up with a double-whammy bringing your credit score down because both end up being reported to the credit bureaus.

Here’s how: You have an account that goes into default and is eventually charged off by the lender. That is reported to the credit bureaus. Then, the lender sells the debt to a third-party collection agency, who also reports it to the credit bureaus.

What to do when you have a Charge-Off and a Collection Account

  • Collection Account: You can offer a pay for delete to the collection agency which will remove the collection entry.
  • Charge-Off Account: Consider paying the charge-off balance if you cannot or don’t want to deal with the collection agency. A charged-off account that has a past-due balance is worse than a charged-off account that has been paid or settled.
 

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