Recently a lot of consumers have been questioning the impact a “Charge Off” can have on their credit report and the duration for which it stays on your credit report. At the very outset, consumers need to understand that charge offs negatively impact your credit report. In addition to this, a charge off debt does not mean that you are free from your debt obligation. Although the creditor may have termed your account as a charge off, clients are still liable to pay.
Charge Off Definition – What Is A Charge Off?
When an account has been in collection for over a period of 180 days or 6 months, the creditor terms this account as a “Charge Off”. In addition to this the creditor will place a charge off listing on your credit report. This is quite similar to the concept of a bad debt in the books of the seller. However unlike as in the case of the bad debt, the creditor will still try and recover the said amount from the debtor where charged off debt is involved. In most cases the creditor sells the account to a collection agency who then pursue the client to collect payment.
How Long Does A Charge Off Stay On Credit Reports?
There are many misconceptions out there regarding charge offs. It is essential to understand that a charge off on your credit report can stay for a maximum of 7 years and no more. However, consumers are somewhat of the opinion that if a collection agency sells the collection account to another collection agency the clock on the 7 year period starts again. This process is known as re-aging and it must be noted that it is illegal. No matter how many times the charge off debt account is bought or sold the time period will remain as 7 years and no more from the date the charge off was listed. Certain collections agencies use a hoax by telling clients that the 7 year period on the charge off will recommence but this is only to make consumers pay and the legally the charge off can only remain for 7 years.
Charge Off On Credit Report – Impact
Charge offs as you already know, negatively impact your credit report. A charge off on your credit report can impact your credit score by up to 100 points. This lowering of your credit score could be the reason that you are denied new credit contracts. Moreover charge off debt will affect your payment history and lenders view it negatively as it means that an account on which you owed a debt has been in collection for over 180 days. This does not reflect well when you are applying for a new credit contract or are even thinking of increasing an existing credit contract.
Remove Charge Offs From Your Credit Report
It must be noted that a charge off can be removed from your credit report only by the original creditor. In order to remove charge offs you might have to negotiate with the creditor who might either accept a partial payment for the charge off or might demand full payment. Remember to get the terms of your agreement in writing. If however the charge off debt account has been sold to a collection agency it will remain on you credit report for 7 years. Try and negotiate with the creditor prior to the creditor bringing a judgment on your account to recover the debt.
It is beneficial for clients to ensure that they stay on top of their contractual payments to avoid situations such as charge offs and debt recovery. If however clients do fall in to these situations it is up to them to ensure that they negotiate their way out the charge off and have it removed from their credit report prior to it being sold to a collection agency as this would result in the charge off being on your credit report for a period of seven years.
References:
- Utility charge off could hurt credit score - Bankrate