Charge off and its impact on your credit score

“Charge off” is generally a negative term associated with your credit report to describe a bad debt. It is usually an account in which you owe some debt. An account is labeled as charged off, if you have not paid for 180 days form the date you made the first missed payment. Charge off does not necessarily mean that your creditor has closed your account and you are no longer required to pay back your debt or in other words you are no longer liable for the debt. In fact you are totally liable for the debt and your creditor has the option to sue you to the court and if needed get a judgment to garnish your wages to get back the debt till the time the SOL in your state has expired. This means that even though your debt has been written off, you are still responsible to pay off the debt.

Charge off can be labeled in any type of account, be it a credit card account or a loan account. Whenever a lender charge off your account, he reports it to the three credit bureaus or the credit reporting agencies (CRAs) who in turn will list it in your credit report. A charge of listing in your credit report may be damaging to and is considered one of the worst among the listings in the credit report. A charge off listing in your credit report may cause your credit score to fall by as much as 100 points if not more. A charge off listing remains in your credit report for seven years from the date of the first missed payment and adversely affects your credit score.

So it is always advisable to prevent yourself from being charged off. Whenever you find that you are not in a position to cope with your debt repayments and there is a risk of being charged off, immediately contact your creditor directly for a negotiation. Try to come to a repayment plan with your creditor for the repayment of the loan and agree for one which you find suitable for you. You may also consult a credit counselor and he may be able to help you find out a way to get out of the situation.

However, if you have an account already charged off and this charge off gets reflected in the credit report, it is always better to pay off the charge off if you can afford to do so. Once you pay off the charge off, the credit report will read “paid charge off” which is certainly better than if it is listed as “charge off”. Moreover, you can also ask your creditor to change the status of the charge off listing as “paid-as-agreed” which will place your account in good condition. However, it should be kept in mind that even if you pay off the charge off in full, this negative mark will stay in your account for seven years.