Charge Off and Credit Report

Even as the charge off gets older, you may find it hard, if not impossible to get approved for new credit. You should avoid getting your account from being charged off at all costs.

What is a charge off?
A charge off is an accounting term. It means that for accounting purposes the creditor considers your debt as uncollectible.

Accounts are typically charged off after 180 days (6 months) of delinquency (less-than-minimum payments).

Once your account is charged-off, you will no longer be able to make purchases with the account. The creditor will report the charged-off account status to the credit bureaus, and this will remain on your credit report for 7-1/2 years from the date reported to the credit bureau.

Does this mean that my debt is forgiven?
No. Many people mistakenly think that when a debt has been charged-off, it’s been cancelled by the creditor. You are still responsible for paying off the debt.

When a creditor writes off an account, it’s considered uncollectible only for internal accounting purposes and proper book-keeping. In no way does it suggest that the debt is canceled.

In plain language, charging off an account is like saying: “we really don’t think we’re going to see a dime of this“. It doesn’t mean that they can’t try.

In fact, charged off accounts are usually sold to collection companies. They will try to collect the debt in various ways. They may even file law suits and in many cases get a judgment against you.

Why is charge-off so bad for my credit?
Charged off accounts are particularly bad for your credit because when creditors and lenders pull your credit report, they see that you once were late enough to have a charge-off. They know that you were delinquent for a long time, and that the debt was deemed uncollectible.
Naturally, they will not risk granting you more credit.

In fact, some lenders will not grant you new credit or loans until you’ve resolved all of your past due accounts.

How to avoid a charge off?
Avoiding a charged-off account is easier than you may think. All you have to do is make the minimum payment on your accounts each month.

If you already have delinquent accounts, catch up with them, especially with those that you are 4 or 5 months behind. Get current on them. You can expect to pay more because of late fees and interest. Still, it’s much better to pay the money now than to deal with the results of a charged-off account for years to come.

Remember, each month you’re late on a payment – you’re one step closer to having your account charged-off.

Do I still owe the debt after the account has aged off my report?
Absolutely. Derogatory items age off your credit report in 7-1/2 years from the date of first deficiency whether paid, settled, or unpaid. That doesn’t mean you no longer owe the debt. It just means it can’t be reported to your credit file.

Should I pay a charged-off account?
Your credit score will drop after a charge-off. Payment history weighs heavily in the calculation of your credit score. An unpaid charge-off will affect your credit score more when it first happens. As time passes, your credit score can improve if no additional negative entries are placed in your credit report.

If you pay the debt, it will be updated with a status of “Charged-Off Paid” or “Charged-Off Settled.” Either is better than a simple “Charge-Off” status, but still undesirable.

What happens when I pay or settle a charged-off account?
When you pay a charge-off in full, your credit report will be updated to show the account balance is $0 and the account is paid. The charge-off status will continue to be reported for 7-1/2 years from the date of charge off.

Another option is to negotiate with the creditor and settle the charge-off for less than the original balance, on condition that the creditor agrees to accept a settlement and cancel the rest of the debt. The settlement status will go on your credit report and stay for 7-1/2 years.

Some creditors may be willing for a pay-to-delete agreement, in which they remove the charge-off condition from your report in return for a full or partial payment, but this isn’t easily done. The most important thing is to pay all or some of the charge-off and get a favorable account status.

How to remove a charge off from my credit report?
The only way to remove a charge-off from your credit report is to wait the 7-1/2 year period or negotiate with the ORIGINAL creditor to have it removed after you pay the account in full.
Paying a collection agency won’t remove a charge off, since it’s reported by the original creditor and not the collection agency. Very few people have actually succeeded in removing a charge off from their credit report.