Coding of Derogatory Credit Status > Reporting an Account as a Charge-off

A loan account charge-off is reported to the credit repositories by setting the loan hold code to "2." You may also want to change the general category to 80-84. However, the credit reporting system does not use those general categories.

Hold code 2 requires that action code 94 and the date of first delinquency is on the loan prior to the hold code.

At monthend when the Credit Reporting screen is updated, the account status will be established as charged off. The principal balance is shown as the charge-off balance. An "L" (charge-off) will automatically be placed in the 2-Year Late Pattern field for that month.

WARNING

If you pay off a loan that should be reported as a charge-off loan prior to updating the Credit Reporting screen at monthend, the loan must have a hold code 2 or 95. The credit account status will show as a paid-in-full loan without these hold codes.

The coding of a charge-off loan for credit reporting purposes is as follows:

1.Enter action code 94 and date of first delinquency on the Letters & Actions screen.

2.Enter hold code 2.

3.Enter the charge-off date on the Loans > Account Information > Account Detail screen, Valuation & Credit Risk tab.

4.Enter the Original Charge-off amount on the Credit Reporting screen, Credit Reporting & Loan Information tab.

Note that the charge-off amount is not updated by the system each monthend.

Change the general category to 80, 82, 83, or 84. The credit reporting system does not use those general categories to report the status, but uses them to determine if it should stop updating the Credit Reporting screen. It looks at the hold code and/or the general category and the charge-off date. The month following the charge-off date, the system stops updating the screen except for the 24-month history.

If you choose not to keep the loan on the system for future tracking, a general category change is not needed; however, all other items are essential. With hold code 2 on the account, the Credit Bureau Status at monthend would be 97 (charge off) and an "L" will appear for that month in the 2-Year Credit Profile field.

NOTE

Charge-off amounts are only reported for either three months, or the number of months set up (in the Miscellaneous Parameter field) for the Credit Reporting Report and Transmission (FPSRP293), following the Charged Off date on the Account Detail screen, Valuation & Credit Risk tab, unless the account has monetary activity. If the account is paid in full after having been charged-off, hold code 95 on the account would cause the Credit Bureau Status of 64 (account paid in full was a charge-off) to be reported.

WARNING

Once the foreclosure, repossession, or charge-off process is completed, institutions vary in how they handle the loan. Some institutions pay the loan off and set up a General Ledger account to track it. Other institutions leave the loan as an open account and continue to monitor it from the FPS GOLD system.

Regardless of what your institution's procedures are, prior to monthend and the updating of the Credit Reporting screen, be sure to enter the correct hold codes, charge-off date, and general categories. The system uses this information to determine the correct status of the account, and to know when to stop updating the screen.

Once these codes are entered, the system will update the Credit Reporting screen only once; the monthend of the month of the charge-off date. This updating creates the account status, payment rating, etc. After that month, the only items updated on the screen would be the 24-month profile (it shifts to the left).

If you pay the loan off, the loan would be reported for 90 days after the payoff date. However, if you leave the loan open, then it would be reported each month until you uncheck the Report to Credit Bureau box. We recommend that within a month or two following the foreclosure/repossession/charge off, you uncheck this box.