A charge-off is when your debt is significantly late and the creditor has considered it a loss. In one sense, you may think that this is a good thing, the company has considered your debt a loss and it has been eliminated. This is where you’re wrong, a charge-off can be very damaging to your credit. Here are some important things you need to know about your charge-off.
When does a charge-off happen?
How long is a significant amount of time? Generally, a charge-off happens after 180 days of not receiving payment. There are some installment loans that can be charged-off after only 120 days. In some cases, there are accounts that can be charged-off even when making payments, usually that is when the payment is below the minimum payment.
The simple answer is yes. Just because the debt has been charged off by the creditor, it does not mean it has been cleared. Your creditor is still owed that money. They can choose to use an internal collections service or even pass the debt to an external collection company.
What do I do now?
Since your debt has been charged off it has left a black mark on your credit for seven years. Combined with the missed payment reports your credit score may fall dramatically. However, you can soften the effect of charge-off by paying the debt in full. This will help by showing “charged-off and paid in full” rather than “settled for less than full balance” or worse, that you haven’t paid the debt at all. Better late than never. Not all hope is lost, if you’re having difficulty making payments, consider debt management or even credit counseling. If the debt was due to a layoff or medical emergency, consider speaking with your creditor. It helps if you can provide a solid history of on-time payments and provide a reason for falling behind.