How Long Do Charge Offs Stay on a Credit Report?

Overview

There are many factors that can cause a person to fall behind in payments to a creditor. When an account is delinquent for 6 months or more, it is generally reported to the credit agencies and then "charged off." However, don't let the terminology fool you. A charge-off does not mean a debt is forgiven. You will still be liable for the balance and will have taken a major slam to your credit score.

Definition

A charge-off on your credit report is defined as a debt that has been determined uncollectible by a creditor. An account is generally not charged off until it has become seriously delinquent (usually 6 months) and the creditor has exhausted all efforts to collect the debt. Although being delinquent in a payment can be reported to a credit agency and will ultimately count against your score, it is still not as large a blemish as having the debt charged off entirely.

Significance

A charge-off remains on your credit report for up to 7 years from the date it was first reported. Having an account charged off does not clear you from the debt. It means only that the creditor reports it as a business loss to the government. It is still considered valid debt, however, and you are still liable to make payment. In some cases, the creditor may hire a third-party debt collector to help collect the balance.

Effects

Lenders and creditors take charge-offs very seriously when they review your credit. Getting a loan or credit card with a decent interest rate may be nearly impossible as long as a charge-off remains on your credit report. It can also cause your existing interest rates to increase. A bad credit score can cost you thousands more in the long run through increased interest rates than it would cost to make payments to the lender in the first place. Negotiation with the original lender can sometimes reduce the effects of a charged off account.

Solutions

If you have an account that has been charged off by a lender, contact the company directly. It is in the company's best interest for you arrange to pay directly rather than sell the debt to a collection agency for a fraction of the amount. When calling, speak politely and professionally and try to negotiate a payment plan that works with your budget. If you can come to terms with the lender, you may be able to get the charge-off reclassified to "Paid as Agreed." This should vastly improve your credit score. As with any legal agreement, protect yourself by getting the terms and conditions in writing from the lender.

Warning

Renegotiating the status of a charge-off is generally something you can do best when you deal directly with the lender. Beware of companies that claim to be able to remove blemishes from your credit and improve your score with very little involvement from you. There are many reputable financial agencies that can assist you in the process of negotiating with your creditors, but most of the time, what they do is something you can easily do yourself for free. If you use a debt consolidation agency, do your research to ensure that its terms are reasonable and that it has a good reputation. Some agencies have been known to consolidate their clients' debts and then fail to make timely payments to the original creditors, causing further damage to each client's credit.

How Long Do Charge Offs Stay on a Credit Report? by debtcenter.info