One of the questions many consumers ask is what precisely is a charge-off? It sounds more complicated than it is, but it’s not a good thing to have on your credit report. If you have a credit card and stop making payments on it, your creditor will likely consider it a charged-off account within approximately 6 months of making your last payment. This means they will write it off as a loss and demand payment in full. They’ll no longer work with you, they might cancel your card, and they might demand you pay right now. Some might sue you for payment, and some might even sell your account to a debt collector.
Charge-offs are bad news, and they’re nothing you want on your credit report. They stay there from the date your account is charged off for 7 years. Since most charge-offs happen around six months after you stop paying a debt, you could see this debt sit on your report for approximately 7 and-a-half years. It’s damaging to your credit score, and even paying it off doesn’t remove it from your credit report. Ideally, this won’t happen to you but if it does, there are a few things you might do to see if you can have it removed from your credit profile before it damages your score even further.
Understand What Charged-Off Means
The mistake many consumers make is assuming that “Charged-Off” means forgiven, but it doesn’t. It doesn’t mean the creditor wrote it off with a shrug and an “Oh well,” when they realized you weren’t paying. They’ll still attempt to collect a debt from consumers. They can remain on your credit profile for a long time, and the lender doesn’t have to stop chasing you for a payment.
The only good news is there is a statute of limitations for unpaid debts in most states. You should look up the information regarding this in your state to find out what you can expect. If you have an unpaid debt in a state where the statute of limitations is four years, your debt collector no longer has the right to sue you following this length of time. They can still ask you to pay your debt, but they cannot sue you. When it’s been seven years, the account is removed from your credit history.
Negotiate with Your Creditor
You can wait until your debt is sent to a debt collector to negotiate the payment of the debt, but this is not advisable for many reasons. The biggest reason is the debt collector does not have the power to remove a charged-off account from your credit report even when it’s been paid. Your creditor, however, has that power. If you have an account charged-off, the best thing you can do is contact the creditor before it’s sold to a debt collector. Now you’ll work on making a negotiation with them to pay off the debt in full or for as much as you can. If you can do this, they might agree to get the charge-off removed from your credit report.
Be sure to get this promise in writing prior to making any payments. If your creditor fails to actually remove the charge-off from your account, it’s going to come in handy when you must dispute the removal of the charged-off account with the credit bureaus. You’ll want to get the name, address, phone number, and employee information from the person who promises this in writing with the letter.
Consider Your Options
If your creditor won’t work with you to remove the charge-off from your account, you’re left with two options. Your first option is to pay the account. It won’t remove it from your credit, but it does appear more favorable to those who you want to work with in terms of a new loan or even a new job. Employers and lenders aren’t required to consider you for a job or loan simply because you paid off a charged-off account, but they might be more open to it.
The second option you have is to ignore the payment. It’ll remain on your credit report for seven years, but then your slate is wiped clean. If you can wait that long, you might be able to get away with not paying off the debt. While it’s always better to pay off the debt, some consumers are unable to do that and need to know there is a light at the end of their financial tunnel.
Charged-off accounts are not favorable, and you want to avoid them at all costs. If you’re working on a charged-off account being added to your credit report soon, call your creditor. If you ever can’t make a payment, call the creditor and ask for some help. Many consumers are able to extend their due date and avoid late fees and penalties if they’re able to call and ask for some help with their situation. It’s considered favorable, and it’s far better to do this than it is to risk a charged-off account on your credit.
Contact your creditors now, and ask them if they’d be willing to work with you. They might say no, but most creditors do want to work with you. Just ask and see how you can improve your financial future.