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Several years ago, due to unforeseen circumstances, payments were not made to any credit account and therefore, the accounts are now charged-off, thus ruining the credit score.

Its about time that this needs to be fixed and here are couple of ways to fix the credit. The question is what is the best option.

Option 1 Do nothing and wait until these charged-off accounts fall off the credit report.

Option 2 Pay the charged off accounts in full. According to several sources, paying off the charged off account won't immediately boost the credit score but it will look better to the eyes of the lender. The paid account will still show up in the credit report as "Paid but previously charged off". It will show up for another 10 years.

Option 3 Settle the charged off accounts with collection agencies/banks for less than what was originally owed. It will stay on the credit report for 7 more years.

What is the best option in this scenario? Are there any other options that I have not explored? The houses in my area are usually around $150K and good ones are at $250K.

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    You may be able to arrange a pay for delete, wherein you pay some/all of the outstanding debt and they delete it from your credit report. It's not something everyone will do, but if they see it as the only way to get money from you they may go for it. – Hart CO Jul 25 '17 at 17:06
  • "These charged off accounts are scheduled to be removed from my credit report in late 2019." How do you know? – quid Jul 25 '17 at 18:38
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    @quid, it shows in the credit report. – elixir Jul 25 '17 at 19:12
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Your post has some assumptions that are not, or may not be true.

For one the assumption is that you have to wait 7 years after you settle your debts to buy a home. That is not the case. For some people (me included) settling an charged off debt was part of my mortgage application process. It was a small debt that a doctor's office claimed I owed, but I didn't. The mortgage company told me, settling the debt was "the cost of doing business". Settling your debts can be looked as favorable.

Option 1, in my opinion is akin to stealing. You borrowed the money and you are seeking to game the system by not paying your debts. Would you want someone to do that to you? IIRC the debt can be sold to another company, and the time period is refreshed and can stay on your credit report for beyond the 7 years. I could be wrong, but I feel like there is a way for potential lenders to see unresolved accounts well beyond specified time periods. After all, the lenders are the credit reporting agencies customers and they seek to provide the most accurate view of a potential lender. With 20K of unresolved CC debt they should point that out to their customers.

Option 2: Do you have 20K? I'd still seek to settle, you do not have to wait 7 years.

Your home may not appreciate in 2 years. In my own case my home has appricated very little in the 11 years that I have owned it. Many people have learned the hard way that homes do not necessarily increase in value.

It is very possible that you may have a net loss in equity in two years. Repairs or improvements can evaporate the small amount of equity that is achieved over two years with a 30 year mortgage.

I would hope that you pause a bit at the fact that you defaulted on 20K in debt. That is a lot of money. Although it is a lot, it is a small amount in comparison to the cost and maintenance of a home. Are you prepared to handle such a responsibility? What has changed in your personality since the 20K default? The tone of your posts suggests you are headed for the same sort of calamity.

This is far more than a numbers game it is behavioral.

  • I am not sure about "akin to stealing". Banks know that its an unsecured loan. They know the risk and benefit of each loan they write. I would say there were some rare/unexpected circumstances that forced me to default on those CCs. – elixir Jul 25 '17 at 19:21
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    @elixir That they [the banks] know the risk that someone may default on a loan doesn't affect whether planning to not pay one back (without declaring bankruptcy) is "akin to stealing" or not. In most cases, I would tend to side with Pete B. on this one. – TripeHound Jul 26 '17 at 8:02

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