Understanding Charge Offs

What is a charge-off?


What is a charge-off?

It’s an accounting term, really. A charge-off refers to an account that is several months overdue, usually six months, and a lender then “writes-off” or classifies the debt as a loss. That results in a note on your credit report that could hurt your credit score. Once you receive a charge-off, it will remain on your credit report for seven years from the date it was charged-off. Not cool.

Can a charge-off ruin my credit?

Having a charge-off in your credit report can result in a lower credit score and affect your ability to get a loan, get approved for a mortgage loan, or a credit card. Once a debt is charged-off you have to pay the debt in full. As long as the charge-off remains unpaid, the creditor can continue collection efforts on the debt and even take legal action against you.

Can I remove a charge-off from my credit report?

Paying the debt in full will not remove a charge-off from your credit report, but it will change the status to “charge-off paid.” Even though you’ll still have a negative note on your credit report, it tells future creditors that you have made an effort to pay the debt.

Before paying your debt, you can call or send a letter to your creditor and try to convince them to remove the charge-off from your credit report. In some cases you might be able to negotiate with your lender to get it removed. The more communication you have with your lender the more you can work to avoid a charge-off.

Paying as much as you can as fast as possible will make the charge-off affect your credit score less and less as the years go by. Make the minimum payment on time each month and have an emergency savings fund. This will give you a little wiggle room to continue making minimum payments to your debt in case of unexpected income loss.

 

Please consult with your attorney, financial consultant/planner, accountant, and/or tax advisor for advice concerning your particular circumstances. The information contained herein is for general informational and educational purposes only and should not be construed as professional, tax, financial or legal advice or a legal opinion on specific facts or circumstances. The information or opinions contained herein should not be construed by any consumer and/or prospective client as an offer to sell or the solicitation of an offer to buy any particular product or service.