What is the difference between a Collection Account and Charged Off Account?
The quick answer is that there is a huge difference between how each can affect your credit score. On your credit report accounts can be categorized as either a Revolving Account - "R", Installment Account - "I", or Other Account - "O". A collection account is neither a revolving or installment account, and is therefore categorized as an Other Account. The balances for "O" accounts does not impact your score, so whether you owe $0 or $10K your score will not change. The greatest impact "O" accounts have on your score is in regard to their Date of Last Activity (DLA). The newer the date the more it impacts your score, which is why paying off collection accounts will usually lower your scores as it will renew your DLA.
Charged Off Accounts are more likely to be reported as Revolving Accounts, and therefore will affect your score differently. For example, "R" accounts not only consider the DLA but also the Balance Due. That is why whenever you are maxed out on a credit card account it has a dramatic effect on your credit score. The dilemma in these situations is trying to decide what is best - will it affect my score more to have the maxed out account charged off or to settle the account for less than agreed only to have it renew the DLA?
In those cases, we suggest a FREE consultation from our friends at National Credit Care. If you are a business owner, you can't afford to have sub-par credit. You work hard for your money. Save more of it by getting your credit score up as high as possible.
