How do I deal with an unpaid/old secured credit card bill?
June 8, 2006 9:15 AM   Subscribe

I had a $200 limit Capital One Secured Credit Card that I was unable to pay - and now its showing up on my credit report with a balance of over 900 as a Charge Off, how do I deal with it and work to remove it?

I was unable to pay because of some financial difficulties, but I'm trying to fix my credit now. I want to pay it off/make it right, but I don't think its fair that I should have to pay over $900 on a SECURED card with only a $200 limit. I know much of those fees are late fees/none payment etc.

Its been on my credit report for several years now, but I'm ready to get rid of it. How should I approach dealing with this blemish on my credit, and what should I expect?
posted by finitejest to Work & Money (23 answers total) 8 users marked this as a favorite
 
I'm not sure how much this applies to your situation, but I read an article at MSN saying that settling a debt in collections can actually hurt your credit rating. Might be worth a read.
posted by ferociouskitty at 9:21 AM on June 8, 2006


It may not be fair, but you agreed to the terms. What's the maximum you can afford in payments to get rid of it? Contact the collection agency, tell them that figure, tell them that's the only way they're getting anything, and send the payments like clockwork.
posted by dirtynumbangelboy at 9:21 AM on June 8, 2006


Dumb question, but if it is a secured card, how can you be late? Presumably you always were paid in advance (and if they let you go over or charge without available security, what is the point of it being secured?)
posted by R343L at 9:23 AM on June 8, 2006


How many years ago was it? Remember your credit resets after 7 years, so like ferociouskitty, you might be better off letting sleeping dogs lie. I think that its straight bull-crap that a secured card would ever show up on your credit report. I thought that was the whole point.
posted by ZackTM at 9:24 AM on June 8, 2006


Its been on my credit report for several years now,

The question is, How many years exactly? Collections like these typically fall off your credit report in 7 years. If you pay it off now, that 7 year cycle will start over again. On the other hand, if you ignore it and continue to make prompt and full payments on any other cards you have, banks will often forgive that one blemish.

DO NOT CONTACT THE COLLECTION AGENCY. That contact will constitute activity on this collection and once again, the 7 year cycle will start over again. Look at your credit report carefully and check the latest (most recent) date for that collection. Add 7 years to that date. If you're less that 2-3 years away from it falling off, just forget about it. The catch to that is if you have a very limited credit history. Then it may make sense to pay it off.
posted by SeizeTheDay at 9:28 AM on June 8, 2006


Shows this info:
Opened: 06/29/2001
Reported: 05/10/2006

So they're still reporting each month. Will it drop off in 2008 or will it continue to show up because they're still reporting?
posted by finitejest at 9:32 AM on June 8, 2006


Tragically, ArtOfCredit.com still seems to be down.

-Exactly- how long ago did you make your last payment, and what state do you live in? If you've been pulling credit reports your Equifax report (not TU or Experian) will show the date of last activity. Depending on where you are you might be out of the statute of limitations which can strengthen your negotiating position.

The date of last activity is what causes the phenomenon ferociouskitty mentions - if you wrote them a check for $900 today the DOLA would change to right now... and it would then live on your report for 7 more years. If it's been 3 years since you paid them and do nothing it'll disappear in 4 years. Credit scoring is complicated and the exact methods a trade secret, however the consensus is that a paid charge-off is not notably different for your point-score than an unpaid charge-off. Add in the question of 'freshness' and yes, you can be worse off paying it.

That said, no mortgage lender will give you a loan with an unpaid chargeoff on your report so if you might buy anything before it falls off you may as well pay it now so it can start aging.

A charge-off is mostly meaningless from a consumer standpoint. The bank must charge off a credit card debt once it's 180 days overdue but all that necessarily indicates is an accounting category. The debt is still valid and they may attempt to collect on it themselves, either through in-house employees or by farming it out to a collection agency.

At some point they will decide you're a lost cause and sell your debt off to a junk debt buyer for pennies on the dollar. This has advantages and disadvantages and I'll let you read up yourself on negotiating with JDBs - there seems to be a lot of talk over on CreditNet. The big advantage is that JDBs can often be cornered into agreeing to 'pay for delete' where they'll stop reporting the entry to the credit agencies if you pay them off. The downside is that it's THEIR entry they're not reporting - the original creditor's chage off entry will continue to show till it ages off.

Do a little reading on creditnet and maybe look for some of FlyingIFR's entries. His suggestions are very aggressive but at the same time it's not necessarily in your interest to write a check w/o determining what's best for you. Your creditors are making decisions on how to act within the contract based on what most profits them, you should do the same.
posted by phearlez at 9:43 AM on June 8, 2006


That contact will constitute activity on this collection and once again, the 7 year cycle will start over again.

This is categorically not true. You should not acknowledge the debt as yours - demanding validation is part of the strategy you'll want to use to gather leverage, and JDBs often do not have it. But account activity for the most part is just PAYMENTS. It's part of why collection agencies will wheedle you to send them anything, $5, anything, just to show you're serious about repayment. It's not to show you're serious, it's to keep re-aging the debt!

You can communicate with them without aging the debt so long as you do not concede it's yours and/or accurate. Think like you see on lawyer tv shows - never concede anything. You should also stop talking with them on the phone, if you are - you are allowed under the FDCPA to request that all communication with you be in writing and they have to stop calling, else they're subject to fines. And that law is privately actionable, meaning you can file suit in small claims and they will have to pay you directly.

Usually you won't do that - it's part of gathering leverage: settle for X amount less and delete the tradeline and I won't file suit for the money for your violations.

What state are you in?
posted by phearlez at 9:49 AM on June 8, 2006


I'm currently in Tennessee (Have lived here for about 2.5 years)
posted by finitejest at 9:52 AM on June 8, 2006


I'm surprised you seem not to have received any offers from the collection agency. It's routine to wait until the total is as bloated with extra fees as the law allows, then start blitzing you with demands to settle. They start at 100%, but then the compromise offers start: 90 cents on the dollars, 70 cents, 50 cents... If it's been several years, there should be payoff offers on the table at ~$500 or so. If none of that has happened, correct any contact info errors on your credit report and wait a few months. The collectors will be in touch.

But like SeizeTheDay said, don't respond to any offer unless you're prepared to see this thing reported for another 7 years.

If you make any payment, require that the bank AND collection agency each first provide written confirmation that upon receipt of X funds, they will immediately report the account as paid/satisfied.
posted by nakedcodemonkey at 9:55 AM on June 8, 2006


phearlez, I'm not claiming your wrong about my comment (I'm still trying to find the exact wording in the credit rights laws), but I wish you were a bit more global in your comment. You comment is effectively dismissing my entire comment (or I felt that way anyway) and most (if not all) of my info. is correct.

finitejest, a big key to whether or not you should pay is, "How is your credit now?" Are you getting competitive interest rates? Have you been denied credit recently because of this collection? Are you applying for a mortage or car loan in the near future? Are you simply just cleaning up your credit for the sake of being clean?

My opinion is, if you're not making any major purchases in the next two years (until 2008), ignore the collection and let it fall off your credit report. It's sucks to have this kind of blemish, but the fact that the collection will reset makes it very unwise to pay at this point.
posted by SeizeTheDay at 10:06 AM on June 8, 2006


but I don't think its fair that I should have to pay over $900 on a SECURED card with only a $200 limit.

Others have got the main parts of the question covered, so I'll add: in the future, if you want "fair" terms in your contract, you may want to avoid subprime lenders like capitalone. For a secured card in particular, try your local bank.
posted by advil at 10:09 AM on June 8, 2006


i'm really surprised that they ended up charging you $900--in other words, they say you rang up $1100. on debt, they took your 200, and you still owe 900. that's pretty damn outrageous.

i've been in your situation before, and the company never charged me that much. if i had to guess, i would think that there was something else going on about your card--ie stolen or used for unauthorized charges.

you could try contacting capital one, but since it's been written off, they probably don't care anymore.
posted by lester at 10:10 AM on June 8, 2006


I appreciate the advice! Right now I'm 27 and still have relatively no credit - no loans, no credit cards, no nothing. I was trying to build it when I was younger with secured cards etc, but ran into financial problems and did more harm than good.
posted by finitejest at 10:22 AM on June 8, 2006


I have a capital one card, and I just got a derogatory thing removed from my credit report.

I just disputed it with Equifax over their web-based dispute form and after a month and a half it was gone. I had a semi-legitimate complaint though: When I got the card I signed up for "payment protection" that's supposed to cover payments if I lose my job or something. Anyway, I didn't have a job but never bothered with trying to "activate" payment protection at the time.

I think the first thing you should do is try to dispute the charge with the credit reporting agencies. If you had a secured card then capital one always had the money that they were owed.

I guess the extra $700 was just interest? Just complain to the reporting agencies. Capital One didn't bother to appeal in my case, maybe you'll get lucky.
posted by delmoi at 10:36 AM on June 8, 2006


er, I mean I disputed with experian, not equifax. I didn't bother disputing with the other ones since it required writing letters and mailing them and I didn't care that much...
posted by delmoi at 10:39 AM on June 8, 2006


i'm really surprised that they ended up charging you $900--in other words, they say you rang up $1100. on debt, they took your 200, and you still owe 900. that's pretty damn outrageous.

i've been in your situation before, and the company never charged me that much. if i had to guess, i would think that there was something else going on about your card--ie stolen or used for unauthorized charges.


I can shamefacedly attest that this exact--I mean, exact thing happened to me. It definitely isn't unauthorized charges. It's simply mind-ripping penalties stacking up.

Here's what happened in my case: after spending around five or six years in the wilderness of destructo-credit (aka the Years of Not Answering the Phone, the Age of Unopened Ominous Mail) I finally found myself in a place to begin rebuilding. In the case of my long-ignored Capital One card, they out of the blue extended me this offer: If, for God's sake, I'd start paying off the old debt, they'd drastically reduce the penalties (I think I got it down by more than half, so I was still getting boned, but as I'm sure is clear now, I'm kind of stupid).

The hook was: for each payment I'd send them, they would also wipe the badness off my credit report and reopen the card to the tune of 50% of whatever I sent in. So for every $100 I sent, I'd now have $50 of room to play with on the card. (Which seems insidious and weird now, but I didn't rise to the bait and use the card. Thirty-four times bitten, occasionally shy.)

Anyway, long story abruptly short, I paid down the debt, and now have a crappy credit card that lives in a drawer, and a somewhat refurbished credit rating. Also, I get plaintive letters from Capital One now and then wondering why I don't put out any more.

Now I will wait for the inevitable news from someone who actually knows things to tell me that I did everything exactly wrong.
posted by Skot at 10:52 AM on June 8, 2006


Dumb question, but if it is a secured card, how can you be late?

It's how the secured card works with Capitol One you put up a small deposit of say, $100 and they'll issue you a card with a limit of $300. Over time if your maintain good credit they'll bump up your credit limit without requiring you to deposit more money as security. They're useful if you can't afford a secured card from other lenders* but their interest rates really suck.

I guess the extra $700 was just interest?

That's what I thought as well, their premium rate is steep, it's currently at 1.99%.

*I was at the bank recently when someone asked about secured cards - this institution wanted $1,000 for a secured card with a limit of $500 ... ouch!
posted by squeak at 11:02 AM on June 8, 2006


Go to the creditboards.com forums. The Newbie section is particularly helpful, especially if you want to start building good credit from here on out - in addition to fixing this problem.
posted by birgitte at 11:04 AM on June 8, 2006


okay, I guess that makes how you could run up fees/interest on a secured card. But they really shouldn't call it a secured card!
posted by R343L at 11:57 AM on June 8, 2006


I second, third, fourth, fifth and sixth the recommendation to go to creditboards.com, and read EVERYTHING there.

CreditBoards.com is the single main reason why I've been able to raise my FICO scores from mid 400's to high 600's in less than 2 years.

Some people on those forums have had even more dramatic results by trudging through the disputing process with the credit reporting agencies and card issuers (and even getting legitimately negative information removed from thier reports), but I don't have that level of tenacity...especially because I philosophically feel that I am solely to blame for my debts (I too had/have a secured $200 CrapOne card that at one time had a high balance of $452 due to unpaid late fees/interest)
posted by melorama at 1:24 PM on June 8, 2006


BTW, one of the only advantages that can be enjoyed from having charged a CrapitalOne card past its limit is that it actually helps your overall "utilization" (the amount of revolving credit available vs. amount of owed balances...which factors into your FICO scores), once you've paid off the card. So a card with a real limit of $200 can actually appear to be a $900 limit card, as far as your credit report is concerned...

The reason for this loophole is that CapitalOne does NOT report credit limits to the credit reporting agencies (only High Balances, which is used in lieu of the actual credit limit in cases where the issuer doesn't report it). That's one of the many reasons why it's commonly referred to as "CRAP One" on the creditboards forums...

In your case, the charge off probably negates any advantage that this loophole can bring, but I find it strange that CapOne charged off the card in the first place. I basically left 2 of my CapOne cards (one secured, one unsecured) unpaid for a period of nearly 13 months, and they didn't close the accounts, nor charged them off. They just lowered the credit limit on the unsecured card and sent me lots of threatening notices. To this day, even though I have no available credit on my unsecured CapOne card (I eventually paid off all the debt owed on the card), it's still reporting to the CRAs as an open account with the high, over-limit balance. Wierd.
posted by melorama at 1:45 PM on June 8, 2006


You comment is effectively dismissing my entire comment (or I felt that way anyway) and most (if not all) of my info. is correct.

Well, sorry I harshed your mellow, but I would think the fact that I quoted you makes it clear what I was disputing. But, while we're at it, let's go ahead and talk about some lines a few people are fuzzing, including you:

If you're less that 2-3 years away from it falling off, just forget about it. The catch to that is if you have a very limited credit history. Then it may make sense to pay it off. and then you say My opinion is, if you're not making any major purchases in the next two years (until 2008), ignore the collection and let it fall off your credit report. It's sucks to have this kind of blemish, but the fact that the collection will reset makes it very unwise to pay at this point.

The fact that a debt is no longer reported on a credit report is a completely different matter from the fact that you owe it. The credit reporting will 'reset' but the debt itself will not. You and I could enter into a contract and I could NEVER report it to the credit reporting agencies. Doesn't mean I couldn't sue the living crap out of you, get a judgment against your home and bankrupt you.

So, finitejest may choose a course of action that involves not paying and 7 years from the date he last paid or promised to pay it will stop showing up on his credit report (or should - sometimes you have to police this stuff - but account age is pretty cut and dry and easy to resolve). BUT they can still come after him for the money, potentially till he's old and grey.

Your credit report is a voluntary reporting system, which is why you can negotiate pay-for-delete with some collectors - they are legally bound to verify everything they report is accurate but they don't have to report anything. If you lend me money and don't pay me back I am not obligated to report to Experian, TU and Equifax. I'm not obligated if you do pay me back. If I DO report I have to be accurate, I have to respond to challenges of accuracy (or the entry is removed) and there are legal penalties if I disregard.

The credit reporting agency also has to follow certain laws and guidelines, one of which being the 7 year lifespan for derogatory information (positive entries can live forever, though you can request they be removed if you wanted to for some reason). Seven years after the last activity an entry should fall off your report, period. It's like it never existed. (there's some language about certain info persisting longer in case of certain size loans and circumstances but as a practical matter it just doesn't happen).

A loan, on the other hand, is a contract between two or more individuals. It is limited and guided by the laws of the state in which it was drafted. Among those laws - and the ones we care about - are the ones guiding the statute of limitations on contract violation and those governing judgments.

Finitejest is in TN, which a cursory googling shows to have a statute of limitations of 6 years. (but don't necessarily trust this - as we know, stuff on the web isn't always accurate) I suspect this is accurate, and unfortunate. This means that between the date finitejest last made a payment or a promise to pay (a promise that can be proven in some way) and 6 years from that point the person with whom he has this contract can exercise legal remedies to recover that money.

Now, to be more precise, they can exercise those remedies FOREVER. Statute of limitations is an affirmative defense, meaning that when finitejest responds to this summons delivered to him in the retirement home in 2050, he will say "screw you, statute on that expired!" and the judge will rule in his favor and dismiss the claim.

Or maybe he's a sucker and he'll write the check for the $1,032,023,049 it will have ballooned to by then with fines and interest. Or he'll show up in court but never raise the issue of the debt being out of statute. Or he'll do what a lot of people do and throw it away, thinking it's old BS and they don't have to care.

At which point the creditor will get a default judgment against him because he didn't show up. And default judgments are subject to a whole different set of expirations than credit agreements, and often can be renewed. In my home state of Florida a judgment lives for 10 years at which point it can be renewed. Thankfully nobody there has one against me, but if they did they could keep renewing it and keep charging interest to it.

Different state laws govern how much interest can be charged - FL's last time I looked was 10%, though the language of the statute implied that they might be able to charge what the agreement specified. We've seen just how crazily this stuff can accrue with some of the more offensive agreements, given finitejest's debt ballooning from $200 to over a grand.

Now, this is a worst-case scenario and there may be better ways to resolve the issue. Following the advice on creditboards he may be able to negotiate a pay-for-delete. Maybe it's been sold to a junk debt buyer and the old tradeline will never get an update in activity. Since he still hasn't told us the date of last activity (rate reported is NOT the same thing!) we don't know what the probabilities are. The fact that they continue to update its balance implies they still own it, so who knows?

Personally I do advice him to be cautious about making any commitments. This may be a small enough amount that the original creditor is just going to sell it off for pennies. Certainly at this point there's little reason to rush into paying before exploring his options.

But you and others need to stop stating that it's just going to 'reset.' Your credit report is not the same thing as your contractual obligations.

On the second point:

you could try contacting capital one, but since it's been written off, they probably don't care anymore.

"Charge-off" is not a synonym for "written off" in this context. It is an accounting term that reflects the fact that as a bad debt it can no longer be considered an asset for their purposes. They still own it, the debtor is still obligated to pay it (subject to SoL, etc) and you can rest assured, THEY STILL CARE AND WANT IT.

Go get a credit card, run up $50,000 in charges, stop paying. After 181 days of delinquency they will update your credit report to say CHARGE-OFF. You think they don't still want that money? You better believe they do, and you will get a summons for that kind of coin.

They might get a collection agency involved and promise them 3% of everything they squeeze you for, but they still want it. Charge-offs are still debts they're going to try to collect. Charge-offs are a huge and growing business.
posted by phearlez at 2:02 PM on June 8, 2006


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