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Charge Offs Explained

Stated by a Dallas credit repair company,  the kiss of death in the world of credit is the charge-off. Once a charge-off is reported on your credit, the period of recovering your credit score will be much longer than if you had to repair a few negative entries.

So what is a charge off? When you fail to make payments on a loan, and a lender has tried repeatedly for months to recover the money to no avail, they may choose to write off the debt as a loss. When this happens, a charge-off appears on your credit report.

A charge-off tells other lenders you’re not a reliable borrower. They interpret a charge-off as big red flag. They’ll be far less likely to loan you money knowing that you’ve already failed to pay your debt on time with another lender.

How Long Does It Affect Your Credit?

While charge-offs are not ideal, the good news is that it does not stay on your credit forever. After a period of up to seven years, the charge-off disappears and the chance for you to build your credit back up to a highly reputable status significantly increases.

If a charge-off resides on your credit report, don’t flush the rest of it down the toilet, too. The more responsible you can be with the other areas of the credit, the more creditors will realize the charge-off was a unique event that is by no means consistent with the rest of your credit.

What Can You Do?

Even if you have a charge-off recorded on your credit report, you can help it a bit by paying off that bad debt. The charge-off won’t disappear, but creditors will see that at least you still paid it off. That’s much better than completely going delinquent on your bad debt.

You can also help yourself by paying all of your other debt on time, each time. Even if you can only make the minimum payment on your revolving lines of credit for a while, it shows future creditors that you are doing everything you can to be a responsible borrower in light of this charge-off entry.

Unavoidable Circumstances

Some creditors look at charge-offs in different ways depending on the nature of the charge-off. Lenders are much more lenient with medical cost related charge-offs. They also may give more consideration to bad mortgage-related debts that have come as a direct consequence to the housing crisis.

Your credit score may still be badly affected by these types of debts but, a lender may look more closely at the rest of your debt profile separate from these particular types of charge-offs.

Handling A Charge Off

Just because your debt has been written off by a lender, doesn’t mean you don’t owe it anymore. They may sell your debt to another collection agency, which means you’ll still be pursued for the debt. Paying off debt, even if it’s been charged off is a good way to start setting improving your credit score.