Learning the lingo of the credit world is an important part of keeping yours intact. One of the terms that you should be aware of is “charge-off.” This may seem like a complicated term at first glance, but the true definition of it is quite simple. If you don’t pay off your debt for several months in a row (usually, six), a creditor may label your debt as a loss in their records. This labels your debt with them as a charge-off on your credit report. Having a charge off on your credit report is one of the worst things that you can have and the most irritating when doing credit repair. It signals that you aren’t responsible as a borrower which can influence future creditors against trusting you with their money.
How a Charge-Off Affects Your Credit Report
A charge-off can stay on your credit report for up to seven years. This up to a variety of different factors including when you start paying it off and if it has been passed on to a collections agency. If you have a charge-off, then you’ve probably been dealing with multiple hits to your credit report for a long time. These hits would have come from the multiple missed payments. But finally getting a charge-off makes a huge dent in your credit report. Also, if your debt ends up getting passed off to a collections agency, then that’s could affect your credit score as well. If you neglect to pay the collections agency that has taken responsibility for your debt, then that could negatively affect your credit score. Dealing with a charge-off can set off a never-ending chain of events that could deal out a huge blow to your credit that could inevitably take years to recover from.
Even if you pay your charge-off debt in full, that doesn’t mean that your charge-off is going to be wiped off of your credit report. When you pay off the debt, it’ll change the status of the debt on your credit report to “charge-off paid” or “charge-off settled.” This is more favorable than having the charge-off on your credit report, but it’s still going to linger on your credit report for seven years.
Another option that you have is to negotiate with your creditor. They might take the charge-off off of your credit report if you pay the debt in full. If your inability to pay the debt dealt with a life event like jobless or a major medical issue you might be able to influence your creditor one way or another by displaying a pattern of positive payment history before that life event. It’s not a sure thing, but it’s definitely worth a try.
How to Pay Off Charge-off Debt
Contrary to popular belief, getting a charge-off doesn’t mean that you aren’t still responsible for the money that you owe. It just means that the debt is deemed unlikely to collect. Your debt is still going to be owed until it’s paid, settled, or discharged in a company proceeding. Your debt might have been sold to a third-party debt collector after your debt was charged-off. That just means that you’re going to have to get in contact with someone new in order to deal with your debt.
If they haven’t sold your debt to a collection agency yet, then try to get in contact with the original lender. Talk with them about your options which may include introducing a payment plan, paying off the debt in full, or settling it for a lower amount. If they have sold it to a collections agency, be sure to ask for proof beforehand that they have ownership of your debt. Once you have that proof, get in contact with them as soon as possible in order to figure out the best path towards paying off this debt. Sometimes, new creditors won’t lend you out any new credit until you take care of all of your debts that are past due. If you’re planning on acquiring any new debt (home, auto, etc.) then it’s very important that you take care of this debt as soon as possible. Don’t let a charge-off debt take control of your life any more than it already has.
If you have a charge-off on your credit report, it’s not the end of the world. You absolutely should work towards getting that debt paid off and possibly even getting the charge-off taken off of your credit report. But, if you’ve done all you can do, then practice positive credit management (paying your debts on time, monitoring new credit lines, etc.) in the meantime in order to build back your credit score and get your credit fix. The effect that the charge-off has on your credit report will wane in time. In turn, be sure to use your credit responsibly and your credit score will be stronger before you know it.