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The Credit Score
Your credit report is a document containing information about all of your debt- related activities. Items such as savings accounts, loans, credit cards and outstanding debts are all found on your credit report. The good information is weighed against the bad information to determine your credit score. If you have a high credit score (above 660), you are likely to get approved for more lines of credit. If you have a low credit score (below 620), getting approved for credit is unlikely.
Paying bills on time is integral to maintaining a high credit score. If you miss a payment or make a late payment within 30 days of the original payment due date, that goes on your credit report and stays there for seven years. Once you become 90 days late on paying a bill, your account is closed and sent to a debt collector, which also stays on your credit report for seven years. While making a late payment is bad, simply ignoring an account and letting it go unpaid for extended periods of time is much worse.
After a collection agency is in possession of your account for an extended period of time (usually well over a year), the agency might contact you and offer you what is referred to as a "charge off." This allows you to pay less than the amount of money you owe to completely settle the debt. It sounds great, but it comes at a price. A "charge off" severely affects your credit score and is a red flag for future potential lenders. It lets them know that not only did you let a bill go unpaid for a long period, you didn't pay the entire amount of the bill.
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