Credit Repair: What Is A Charge Off?

A charge-off is in your future if you fall behind with your credit card payments.

A charge-off is used by lenders to indicate that they don't expect an account to be paid. You may receive a charge-off if you fail to pay your credit card bill for at least 6 months. Your account will be removed from the lender's books. The lender isn't throwing in the towel. It's simply a tax maneuver.

When a lender issues a charge-off, the outstanding balance is listed as a loss. That means the lender is no longer claiming the debt as an asset. Note that this is beneficial to the lender, but terrible for you. A charge-off is extremely bad for your credit rating.

Potential lenders see "charge-off" as a red flag. It indicates that you have a history of not paying your debts. If you have a legitimate reason for non-payment, such as losing your job, it doesn't matter. If you contact the lender and explain that you plan to pay soon, say next month, it makes no difference if they've decided to charge-off your account.

The term "charge-off" implies freedom from paying the debt - but that is an erroneous assumption. It simply means the lender isn't claiming your debt as an asset. It's an accounting procedure that has no bearing on your financial obligation. You're still responsible for paying the debt. Even worse, a charge-off remains on your credit report for seven years - unless you negotiate to have it removed.

You can possibly convince the lender to accept a portion of what you owe. This is called a "settled charge-off" or a "paid charge-off". Contact the lender to make sure they still own your account. Find out how much you owe, and figure out how much you can afford to pay. Find an amount that is comfortable for you and can be paid immediately. However, before paying anything, see if you can get the lender to give you a "paid".

"Paid" removes the charge-off notation. But it will only be marked as such by request. If the lender agrees to this, it's a good idea to get it in writing. If your account is no longer owned by the original lender, then you can still negotiate with the new owner.

Lenders often sell their charge-off accounts to third parties. In this case, the original lender no longer owns your account. It is now owned, and will be collected upon, by a third party. The third party is usually a collection agency.

If your account goes to a collection agency, you can attempt to negotiate with them as you would with the original lender. However, you should try to solve the problem before it gets to this. Even if the agency removes the charge-off it won't improve your rating. The very presence of a collection agency on your report tells the whole story.

After everything is settled, it's recommended that you check your credit report. It's important that your report accurately reflects the state of the charge-off. If the lender or collection agency agreed to mark it "paid", you have to make sure it's noted correctly. Even if they didn't agree to mark it as paid, then it should at least be updated to "paid charge-off".

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