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Should I Repay Bank for Charged-Off Account?
I had a student bank account with a local bank for two years. I am eighteen years old, and I lost my job and my mother was able to access my account through her online banking panel. She transferred $150 out of my account which I did not have, I only had $10 in my account. My bank offered over-draft protection and charged me $22 for the transfer. My mother said she would put the money back, but due to financial troubles she was not able to do this. It has been a few months and my account has been stuck at -$120. I ran into some extra cash and was going to put the money in my account to bring me back up into the positive, but when I checked my online banking panel it says my account balance is $0. I called the bank and they said they canceled my account. My question is... since my account balance says $0 do I need to pay the bank what I owed them, and can they give me a bad report that will hurt my credit score?
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 If you ask the bank representatives, they will tell you that you should repay the $120. Once a bank overdraft appears uncollectible, or has remained on the bank's books for a period of time, the bank must charge it off, but that does not necessarily mean the bank will stop trying to collect the obligation. One way the bank may try to get some advantage is to report the charged-off account to a credit reporting agency (often called a credit bureau) like Chex Systems.
Many banks subscribe to credit reporting agencies and check prospective new customers there to see if there are reports of charge offs or other negative information. If your name has been reported, you may find it difficult to open an account elsewhere, and your credit rating may be adversely affected.
If you repay the bank, ask them to note that fact with Chex Systems or any other agency they may have reported the charge off to. It won't erase the negative report (if there is one), but it will show that it was paid off. That will take some of the "sting" out of any report given to banks or others who may review your credit report in the future.
Published on BankingQuestions.com 1/08/07
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