What is a charge-off and does it hurt your credit score?
These days, most people are well aware of the importance of achieving and maintaining a good credit score. Your credit history and score can affect everything from your ability to get a mortgage or car finance to your ability to rent a home or even get certain jobs. This is why it is so important to try to keep your credit on track and do everything you can to maintain good credit or improve your credit score if it is low.
There are lots of things on your credit file that can lead to a low credit score. This includes black marks from late or missed bill and debt payments, being over-burdened with debt, using a high percentage of available credit, and any court actions, bankruptcy, and other financial legal actions taken against you. In addition, something that can be seriously damaging to your credit score is the presence of charge-offs.
What are they?
So, what is a charge-off and why is it so damaging to your credit file and score? Well, a charge-off is basically an account whereby the creditor has tried to get you to repay the debt and make good on the money you owe. However, having failed to get the money owed from you, they have then given up and closed the account.
Naturally, this does not look good at all when it comes to applying for other forms of credit from new creditors in the future. The last thing you want is for creditors to look on your file and see that there are charge-offs where you have failed to repay debts and they have been closed as a result of non-payment.
Charge-offs are considered seriously detrimental to your credit file and report, as they do not bode well when it comes to giving other creditors an idea about your reliability and honesty in terms of making payments on debts. There is no doubt that charge-offs can hurt your credit score and financial future. This is why so many people are eager to get charge-offs removed from their credit file.
How it works
If you owe a creditor money on loans and other forms of finance, you are responsible for keeping on top of repayments until the debt is paid off. If you make late payments or miss payments now and again, you will generally be chased by the creditor and may face financial penalties such as late payment and admin fees.
However, often if the account is delinquent for six months or more with no payments being made by you, they may be charged off by the creditors. Once a creditor decides to charge off your account due to lack of payments of an extended period, the amount you owe will still be reflected on your credit file, but the account against which you owe the money will show as being charged off.
Another thing to note is that the creditor may decide to sell on the debt to a third party such as a debt collection agency. If they do this, the charged off account will still appear on your credit file, but the balance will show as zero.
What can you do?
If you have charge-offs on your credit file, there are a few different steps you can take depending on the reasons for the charge-offs being there in the first place. For instance, if you do not agree with the charge-off on your credit file, you can file a dispute with the credit reference bureaus with a view to getting it investigated and removed.
On the other hand, if the charge-off is on your account for good reason, you may be able to come to an arrangement with the original creditor. This would involve making payments that you owe to the creditor in exchange for having the charge-off removed.
One other thing you may want to consider is using a credit repair company to look through your report and determine the best course of action to take. This may be an option if you are limited for time or you do not have the confidence to deal with charge-offs and other issues yourself, but you want your credit file to be looked at and improved.
Keeping an eye on your report
In order to determine what state your credit file and score are in you need to keep a close on them with regular checks. This will enable you to see whether there are any charge-offs or similar issues that you need to deal with.
Story by Cyndy Lane