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How to Repair Credit After a Charge-Off

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A charge-off on an account means that the creditor believes there’s little to no chance that you’re going to pay it off. But, that doesn’t mean you no longer owe the debt. Here’s what you need to know about charge-offs, and how to repair your credit score if you get one.

What Is a Charge-Off?

A charge-off happens when you stop paying on something, and it typically happens around 180 days of no payments, but the timing can vary. It’s a serious delinquent account, and can cause lots of damage to your credit score.

While the name “charge-off” may give the impression that you’re off the hook, this isn’t the case.

Once a debt is considered a charge-off, it’s called “bad debt” and the account is closed according to your creditor. A creditor can only report an account as an asset for so long, and the more that time has passed, the less likelihood there is that the debt is going to be paid off. After a certain amount of time, the creditor notes the past-due account as a charge-off and takes it off their books.

After this, the account is likely to be sold to a debt collection agency, which then starts its own collection efforts. You can still be called or contacted about the debt because you still owe that amount – your original creditor has simply passed the buck to someone else.

Charge-Offs and Your Credit Score

Having a charge-off on your credit reports isn’t the best situation to be in. It lowers your credit score, and it can make getting new credit difficult. Having accounts in collections can also harm your credit. Payment history is the biggest part of your credit score – making up 35% of it – so the missed or late payments associated with the charge-off can lower your credit score quite a bit, too.

The two biggest influential factors of your credit score are payment history and amounts owed. Amounts owed makes up 30% of your credit score, and it takes into account all of your total debt. If you have negative debt that isn’t being paid, not only do the missed or late payments hurt your credit score, but the debt is still contributing to your total amounts owed. Paying the charge-off in full can lower your total amount owed, and stop collection efforts from your creditors and collection agencies.

Many borrowers wonder if it’s worth it to pay a charged-off account, and the answer is yes. You still owe the money, and even if you don’t pay the full amount, paying some of it can help. Paying the amount in full stops any other further credit damage from that account.

If the charged-off account was sent to a collection agency, you need to pay them. The original creditor of the account doesn’t have the account anymore, so you can no longer reach out to them. Once you pay the account in full, the collection agency lists the account as “paid collection” on your credit reports.

It’s still listed as this on your credit reports for up to seven years, but it’s better than an unpaid balance that’s hurting your amounts owed and payment history categories. Seven years from the date they were reported, that account falls off your credit reports, along with the missed or late payments that caused the charge-off.

Repairing Your Credit After a Charge-Off

Many lenders, such as auto lenders, can view a borrower with one or more charge-offs as risky. However, taking on new credit and making on-time payments can be a great way to improve your credit after heavy damage. It can be hard to find a lender that can work around poor credit, though. But there are lenders that can do just that.

Car lenders that assist borrowers with bad credit and unique credit situations are called subprime lenders. Subprime auto loans are reported to the credit bureaus, so your payments can repair your credit.

They’re signed up with special finance dealerships and specialize in reviewing a borrower’s complete financial situation instead of just their credit reports. You’re more than just a credit score – your income and overall living stability is important to a subprime lender, too.

While taking on more credit while you have a bad credit history sounds counterintuitive, it’s really not. One of the top ways to improve your credit score after a charge-off is paying off bad debts.

Other Quick Credit Repair Tips

While paying off the charge-off and taking on new credit can be great for your credit, it’s not the only credit repair options you have.

Other quick credit repair steps you can take include:

  • How to Repair Credit After a Charge-OffPaying down your credit cards – If your credit cards are over 30% of their spending limits, it can really lower your credit score. The lower you can get those balances, the more your credit thanks you.
  • Review your credit reports – There are three major credit bureaus: TransUnion, Experian, and Equifax. Each has their own credit report, so it’s important to check all three regularly to make sure the correct information is being reported. You can request your credit reports for free once a week (until April 2021 due to the pandemic) at www.annualcreditreport.com.
  • Dispute errors – Sometimes, the wrong thing gets reported on your credit reports and it hurts your credit score. You have the right to dispute accounts you believe are wrong and have them removed. If you find an error or inaccuracy on your credit report(s), dispute it with the credit bureau and try to resolve it. Errors are common, and reportedly impact about one in five borrowers.

Finding a Bad Credit Dealership

With some time, patience, and timely payments on new credit, you can improve your credit score. Credit reports aren’t set in stone – they’re everchanging and you mold them with your actions and spending habits.

Finding a dealership that has bad credit lending resources isn’t always easy, so we want to help with that! Here at Auto Credit Express, we’ve already done the work of creating a nationwide network of dealers that are signed up with subprime lenders. Get connected to one in your local area by completing our free car loan request form.

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AOK seminar to look at outliving incomes

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The North Central-Flint Hills Area Agency on Aging (NC-FH AAA) has announced a new Zoom seminar that provides older Kansans with information on what can happen if people outlive their incomes and how to avoid this situation.

The Answers for Older Kansans (AOK) seminar is scheduled for May 27 at 5:30 p.m.

Paul Shipp, managing attorney at Kansas Legal Services, will present Living Longer and Running Out of Money. Shipp will cover the financial problems that can arise from living longer than you had planned. Topics covered in this presentation include bad credit, reverse mortgages, avoiding credit card debt, and bankruptcy. A handout from Kansas Legal Services on ways to protect your income and assets will be available to those who register.

Registrations must be made by noon on May 27. To register visit ncfhaaa.com/seminars or call 1-800-432-2703.

The seminar is without cost, however, donations that support and expand services for older Kansans, people living with disabilities and their caregivers are welcomed.

Details on how to participate in Zoom technology are available at www.ncfhaaa.com and login instructions will be sent to those who register.

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Can I be denied a job due to bad credit?

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Can I be denied a job due to bad credit?
Image source: Getty Images


People often worry about their credit history when it comes to applying for a new credit card, a mortgage or a car loan. If you have poor credit, should you also be concerned about finding work? Can you be denied a job due to bad credit?

Let’s examine the facts.

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What is bad credit anyway?

Bad credit is basically a negative assessment of your finances based on your history of borrowing. Bad credit implies that you have a bad track record with lenders. This is most likely because you have a pattern of not paying your bills on time or defaulting on your loans.

Is it legal for employers to check my credit report?

Law and finance firms are legally required to perform credit checks on potential employees. However, other kinds of employers can also conduct credit checks on you before they hire you. But they must ask for your permission before they do so.

In many cases, a credit check will be performed by a company if the role you are applying for involves dealing with large amounts of cash.

Why might employers want to check my report?

There are many reasons an employer might want to check your report. For example, they might want to ensure that:

  • You are who you say you are.
  • You have a good track record of managing money.
  • It’s not too much of a risk to let your manage money.
  • Your financial behaviour will not affect your work performance.

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Rewards credit cards include schemes that reward you simply for using your credit card. When you spend money on a rewards card you could earn loyalty points, in-store vouchers airmiles, and more. MyWalletHero makes it easy for you to find a card that matches your spending habits so you can get the most value from your rewards.

Can an employer deny me a job due to bad credit?

Yes. According to credit reference agency Experian, if your prospective employer feels that your current financial situation could impact your ability to perform well in the role, or if your credit history shows poor financial planning, they may decide not to hire you.

Generally speaking, however, employers are more likely to be concerned about serious ‘red flags’ in your credit history, like bankruptcy rather than the odd missed payment.

In any case, employers only get access to your ‘public’ credit report. This contains your electoral roll information and any major red flags such as bankruptcies, individual voluntary arrangements and county court judgments.

They will not have access to your detailed credit repayments or your credit score.

How can I keep my credit history from affecting my ability to get a job?

If a prospective employer runs a credit check on you, ultimately you have no control over what they do with the information, including denying you a job due to bad credit.

The best thing you can do to minimise the impact of your credit on your chances of getting a job is to review your credit report beforehand.

You have the right to one free credit report per year from each of the three credit agencies (Experian, TransUnion and Equifax). Before you apply for a job or attend an interview, request your report and review it for any errors so that you can have them corrected ahead of time.

Even if there are no errors, knowing what is on your credit report puts you in a good position to answer any questions that may arise during the hiring process.

Indeed, if there’s something in your report that employers might consider a ‘red flag’, don’t panic. Instead, begin preparing an explanation to give to them. If it was, for example, caused by financial hardship beyond your control, the employer may take this into account.

Alternatively, you can contact a credit reference agency and request that a notice of correction be added to your report. This is a brief note of up to 200 words in length that explains circumstances that a lender might otherwise question.

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Refinancing Your Subprime Auto Loan

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Refinancing is a wonderful way to save money on your monthly car loan payment – but it can cost you more in the long run if you’re not careful. Refinancing when you have a subprime auto loan isn’t always as easy as refinancing a vehicle when you have good credit. Working with the right lender can help, though.

What Is Refinancing?

Refinancing is when you replace your existing car loan with a different one for the same vehicle, which may have either a lower interest rate, a longer loan term, or both.

Qualifying for a lower interest rate is optimal for getting a lower monthly payment and saving money overall. If you only extend your loan term without getting a lower rate, you actually end up paying more in interest charges over the term of your loan.

Auto loans typically use a simple interest formula, meaning your interest charges add up daily. The longer your loan term, the more you pay the lender – it’s wise to choose the shortest loan term you can afford. If you only extend your loan term you may end up paying more than the vehicle’s value!

Refinancing can typically be done with your current lender or with another one. It’s a good idea to shop around for the best possible rate before going with the first offer you receive. When you shop for the same type of financing with multiple lenders in a two-week timeframe, it’s called rate shopping. When you do this only one credit inquiry impacts your credit score instead of multiple, minimizing the negative impact that hard pulls can have on your credit score.

Options for Bad Credit Borrowers

Taking out a subprime auto loan is a great way to improve your credit, so, if you’ve kept up with your loan to this point and just need a little wiggle room in your budget, refinancing could be for you. Your credit is an important factor in refinancing your auto loan because refinancing is typically reserved for people with good credit.

However, when a borrower already took out a subprime car loan, many refinancing lenders are willing to work with them as long as they’ve made improvements to their credit over the course of the loan. Better credit alone doesn’t qualify you for refinancing, though.

In order to qualify for refinancing, you, your vehicle, and your loan all need to meet the requirements of a lender. These vary, but in order to refinance your car you typically need to meet these qualifications:Refinancing Your Subprime Auto Loan

  • Have a better credit score than when you began the loan
  • Have had your auto loan for at least one year
  • Have an acceptable loan amount
  • Have no more than 100,000 miles on your vehicle
  • Car can’t be more than 10 years old
  • You must be current on your payments
  • There can’t be negative equity in the vehicle

Lenders that refinance typically prefer cars that are in good condition, that aren’t too old, and have lower mileage. Some lenders may not want to refinance a vehicle that’s at risk for breaking down or is depreciating quickly.

They’re generally looking for a loan that isn’t too new, or too close to being paid off as well. And, refinancers may also require that you haven’t missed a payment on your original car loan. A borrower whose current on their loan gives a lender confidence you’ll manage the new loan well.

Alternatives to Refinancing Your Subprime Auto Loan

If you’re not able to refinance your vehicle, you typically still have the option to trade it in for something more affordable. Even if you’re still paying on a loan, all you have to do is pay off the loan to release the lien on the car.

Even if it’s years from the end of your loan term, you may have a good chance at trading in your vehicle, especially now. Due to fluctuations in the auto market, used cars are in high demand currently, which means that dealerships may be willing to pay a higher price to get your used vehicle on their lot – even if you’re a bad credit borrower looking to trade-in.

If you still owe on an auto loan this gives you a better chance at selling your car for the amount you owe to the lender. It may even give you enough cash left over to put toward your next, more affordable vehicle!

Ready to Get Started?

If you think refinancing your subprime auto loan is the way to go, you can check out our resources, here. But, if you think that finding an affordable, used car with a lower monthly payment is the right choice for you, we want to get you started toward your goal today!

At Auto Credit Express, we’ve got a coast-to-coast network of special finance dealerships ready to work with borrowers who are struggling with credit challenges. To get connected to a dealer in your local area that’s signed up with subprime lenders, simply fill out our auto loan request form. It’s fast, free, and never carries any obligation.

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