Stated by some credit repair companies, In credit terminology, a charge-off is when you don’t pay on your debt in a period of time (usually six months) the creditor writes your debt off as a loss and a charge-off appears on your credit report.
The last thing you want on your credit report is a charge-off because it tells creditors that you’re not responsible and that you don’t pay your debts.
In this article, we look at charge-offs, how they affect your credit and what you can do about them.
Charge-offs & Your Credit
As mentioned, when you don’t pay on your debt, and the creditor writes it off as a loss, a charge-off is listed on your credit report. This black mark on your credit report can last upwards of seven years.
If you do get a charge-off on your credit report, there’s a good chance that your credit was already in trouble due to many missed payments. Keep in mind that if the creditor writes off your debt, it doesn’t mean you’re off the hook; in many cases, the creditor passes the debt off to a collection agency, and if you fail to pay them, you’ll get even more bad marks on your credit report.
Remember, too, that even if you pay off the debt to the collection agency, the charge-off remains on your credit report although it may reflect that the debt has been paid, which is better for you, but still, you don’t want it on your report, to begin with.
In some cases, you can talk to your creditor and arrange to pay the debt in exchange for having the charge-off removed from the credit report. There’s no guarantee, but you can try your luck.
Pay Off Your Debt
As mentioned, just because the creditor wrote your debt off as a loss that doesn’t mean you don’t have to pay back the money you borrowed. In many cases, your debt is sold to another company who specializes in debt collection, and you’ll be responsible for paying them.
The best course of action is not to let it get to that stage. If you’ve gotten behind, and the creditor deemed your debt unlikely to be paid, you still have the opportunity to make things right with them provided they haven’t sold your debt to a collections agency. Remember that the creditor wants to get paid, and in some cases, they’ll work with you if you show good faith towards paying off the debt. Paying off the debt is crucial if you want to get a mortgage or auto loan down the road.
It’s Not The End of the World
True, having a charge-off on your credit report is bad, but it’s not the end of the world. Work on paying it off as quickly as you can, and in time, the adverse effects of having that black mark will disappear so you can start rebuilding your credit again.
Veeramachineni Lalitha
I am Finance Content Writer. I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank. My experience details : Linkedin