Credit card charges and their impact on your credit score
If you think that paying your bills late won’t affect your credit score, think again. Late payment of bills under any circumstance can tarnish your credit history. Initially (during the first 180 days), the longer you go unpaid, the more it will affect your credit score. In the event that unpaid credit card debt reaches a point where the lender believes it will be irrecoverable, it will be known as a “write off.”
A cancellation allows creditors to cancel the debt and claim a tax exemption. Usually an unpaid amount is recorded as a cancellation when you do not pay the invoice for at least six months. However, tenure varies from one lender to another.
Why avoid surcharges?
A cancellation means that you have defaulted on the debt you owe. Once a debt is canceled, it is no longer considered revolving debt. It becomes a balance to be paid. If possible, it is always advisable to avoid a load. This is because when your account is revolving, you still have the ability to pay off debt and get your credit score in good stead.
Even if you pay the amount owed in full, a write-off will remain on your credit report for the next seven years. This is because your payment history is considered an indicator of your future behavior. In the event you settle the charge by paying less than what you owe, both transactions will be reflected on your credit report.
Myths about cancellations
One myth that most people may have heard is that write-offs can be removed from your credit report. It may be surprising to know that your responsibility to pay the debt does not end when it is paid off. When your debt has been transferred to a collection agency, the contract you signed to pay the debt will remain in effect until you settle the account. An important point to remember when your debt is discharged is that you may not be able to settle the payment with the original creditor, but with the company responsible for collection.
The impact on your credit score
Cancellations can hurt your credit score to a great extent. Whether you owe $ 100 or $ 1,000, cancellations can pose a huge threat to your future investment plans. A write-off can take your credit score down dramatically. Like some of the other flaws on your credit report, a write-off can be a major setback in the event that you are making an effort to improve your credit score.
It is advisable to consult a credit repair company that will help you assess your credit score regularly and detect any flaws or inaccuracies that may be present in the credit report. Such a company can also advise you on the various steps that will help you improve your credit score.