Everyone knows that paying your bills late will adversely affect your credit score. Each time you are late, your credit score takes another hit.
And if you start skipping multiple payments or just stop paying the credit card company will send your account to their internal collection department. Or they can hire a collection company to reach out to you about making the payments.
But what happens when the loan / credit card company feel that they have tried everything to bring your account current? That is when a charge off will appear on your credit report.
Below are the things you need to know about having a charge-off on your credit report, how it affects your credit, and how to deal with it.
What is a charge-off?
The account will be regarded as charged-off once the creditor has stopped attempting to collect payments you have been delinquent on. This is possible for credit card balances, mortgages, and other types of debt.
The creditor can decide if it will be reported as a loss for the company, thus listing it as charged-off. Additionally, this will also be reflected in your credit report, which will bring your credit score down even lower.
Keep in mind! Having an account charged off does NOT mean that you no longer owe the debt! The debt can be sold to a third party and they can start the collection process all over again.
How does a charge-off affect my credit score?
By the time your account is charged off, you will have several months of late payments. That alone can drop your credit score significantly.
To mitigate their loss. Most creditors will sell your charged off account to a collection agency. At that point your credit report will show the original debt as charged off. And a new NEGATIVE trade line will be added to your credit report by the collection agency.
BUT the date of last payment made should stay the same! An old collection agency trick is to try to use the date they PURCHASED your charged off account so that it will have a bigger impact on your credit score!
Whether it’s the original creditor or a third-party collection agency. That charged off account will remain on your credit report for up to 7 years from the date of your last payment.
What should I do with a charge-off?
Creditors and debt collectors are required by the law to give a validation notice that will inform you of the unpaid debt.
Here are some of the things you can do after getting the notice:
- Verify the information– Before anything else, make sure that they have the right information, and the account is truly yours. Check the most important details, like your name. It is possible to have it mixed up with another account, especially if you have a common name.
- Check the stated balance– Understand that the amount may not be the same as when it was first charged off. There will be late fees, along with fees charged by the collection agency that has been legally added to your debt. But, always remember you can negotiate these fees away. Try to work with the original creditor if possible.
- Inspect the dates– Check if the dates stated are correct and consistent. The charged-off date should be the first day of your missed payment. You can ask the creditors for this information as they are legally obligated to give you an answer. If you are confident that the charged-off debt is an error, you should contact the credit reporting agencies that have the wrong information. They will ask for any supporting documents before the investigation. Once they have decided that it is incorrect, they will remove it from your account.
Should I pay the charge-off?
If the charged-off account is yours, you are still responsible for paying the debt. Supposing that your charged-off debt still has not been sold to a third-party collector, work with your original creditor to pay off the debt. Don’t forget that you can negotiate with the creditor to settle for a lesser amount! Once you have reached an agreement and paid the debt can show , settled, or paid charged off.
If a collections agency is already handling the account, verify the information first before paying. You can also negotiate with them to pay off a lower amount. You will want to ask them how the original negative trade line will appear on your credit report. With SOME collection agencies you can negotiate with them and they will completely remove their negative trade line from your credit report.
Ultimately, a charged-off debt will hurt your credit score, but there are things you can do about it.
- Verify the debt and make sure it’s being reported correctly
- Negotiate with the creditor / collection agency for a lower amount – especially if the debt is old.
- Ask the creditor / collection agency if they will remove their negative tradelines completely from your credit report ·
- Start adding positive tradelines to your credit report with an unsecured credit card for people with credit problems or a secured credit card.