Charge-off accounts are the accounts on which a creditor has given up all the expectations that his debt will be cleared. After a person misses his payments for several months, his account is being written off as charge-off accounts, which means that the creditor has written off your account as a loss. A single Charge-off account can take up to 150 points off an excellent credit score.
Before an account is put to charge-off, a lender or a creditor waits for at least 180 days or 6 months. It doesn’t mean that a debtor is not obliged to pay his debt, even though your account is reported as a loss by a creditor but you are still responsible for your dues. A creditor can either try to collect the debt itself, sell your account to a collecting agency, or hire the collecting agency to collect for them.
Once the creditor writes off your account, there are chances that it may be reported to the credit bureaus. Once it is done then it will be translated as a derogatory mark in no time. A derogatory mark stays on your report for a total of 7 years from the date you missed your first payment. In this article, we have stated 6 vital facts regarding charge-off accounts that you need to know.
6 Facts About Charge-Off Accounts That Are Worth Knowing
1. What is the impact of charge-off on your credit score?
Having a charge-off on the report is considered a negative mark, and is likely to leave a severe impact on the credit score. There are high chances that it may pull off 150 points of your credit score as according to FICO (which is a highly used credit scoring system). If your score was higher initially, it will leave a huge impact on your score.
However, it is said that a recent charge-off may have a more powerful crash than the ones with an older negative history. As the timeline grows, its effect starts to fade away.
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2. For how long does it stay on your report?
The charge-off stays on your report for the full 7 years from the date of your first missed payment. It is also known as ‘delinquency date’.
3. Is it possible to remove a charge-off before 7 years?
Unfortunately, there is no escape from this till now, which signifies that your report will still reflect a charge-off, though it can be a paid charge-off or paid collection as reported by the lender or the collecting agency. When creditors send your report to the credit bureaus, they have a contract with them that the negative information will not be removed as a way of collecting debts.
Although, you can give it a shot and try to negotiate with the original lender. If it is unsold, you can pitch to pay your dues in exchange for the removal of charge-off from your report. This is referred to as a ‘pay for delete’ offer.
4. Should we pay our charge-off account?
The foremost act for you to do is proper verification of the accuracy of your charged-off account. A debtor needs to be sure that he is charged on the basis of accurate terms by his creditor. There are three ways that may help you in verifying the accuracy of the charge-off :
- Confirm your charge-off date and make sure it is the date on which you missed your first payment on the original account.
- Your account is closed and has zero balance if it is sold to the collecting agency.
- Monitor your dues and if an over-charge comes to your notice, feel free to ask your creditor regarding the same.
If you find that a charge-off is valid, make sure that you pay off your charge because not paying it will limit your chances of getting a loan in the future. However, if the charge is invalid, you can also file a dispute on the TransUnion credit report using Credit Karma’s Direct Dispute tool. It will be investigated and reviewed within 30 days from the date you filed your dispute.
5. How to pay off your charge?
You can clear your payment in three ways depending upon who is handling your account :
- In the hands of the original lender
In case your account is still managed by the original lender, you can make your payment to them. After receiving the due, the lender ought to update the status of the account from ‘ charge-off’ to ‘paid charge-off’ and change the balance to zero or NIL.
- In the hands of the collection agency
Sometimes a creditor or lender hires the collection agency to manage your account or even sells your charge-off account to the collecting agency.
If it is managed by a hired collection agency, you can also negotiate with an agency or a creditor to pay less than the full amount. If they agree on that, they will mark your charge/off account as ‘Settled’ charge-off. This may not seem so positive but your account won’t be sent to collections.
In case your account is sold to the collection agency, you can clear off your debt after confirming that they hold your account. It will update your status to ‘paid collection’ which will be favourable from the ones owing unpaid charge-off accounts.
Also, ask for your final payment letter from the lender or the collection agency after paying the unpaid balance so that you have a piece of evidence in case the credit report is still not updated.
6. Will the credit score increase after paying the charge?
No, your credit score will not shoot up after paying the charge as your history of late or missed payments will still be reflected. Once your account is charge-off, it will always be a bad mark on your goodwill.
However, your act of paying off the debt will help you in upgrading your chances in the eyes of the lenders. Hence, paying the unpaid balance will help you in avoiding any legal actions that may be enforced upon you.
Having a charge-off account can be a discredit for the account holder but with the right actions, it can surely surpass the tough time. If you choose a reputable credit repair company, it may introduce you to your consumer rights.
If your dispute holds 100% accuracy then it means that a charge is still unverifiable, in that case, it will be deleted from your report.