Making timely payments has always been appreciated by lenders in the form of providing low-interest-rate loans. It’s the reason why lenders use your credit score to determine how meticulous you are at paying off your debts. While a good credit score enables you to borrow more money at considerably low-interest rates, bad credit, on the other hand, can give you a hard time getting a loan. Although poor credit loans with monthly payments have made getting quick funds even with a lousy score easier, you may face one of the worst nightmares of your financial life if you perpetually fail to make payments to a lender for a specified period. So that is when your account has been charged–off.
You can certainly breathe a sigh of relief if you don’t know what a charge-off means because you haven’t faced it yet. However, as much as it is essential to not have a charge off on your credit report, it is also important to know what it means and how you can avoid or get rid of this derogatory mark from your credit report.
Charged-Off Doesn’t Mean Paid-off
Late payments may not affect your credit score if you are late by less than 30 days, after which they report to the credit bureau. However, if you have been missing your minimum credit card payment for consecutively 180 days or six months, you may see a charge-off on your credit report.
A charge-off is nothing but a declaration by your creditor stating that an amount of debt is unlikely to be collected. Even though the lender stops trying to collect the debt, a charge-off does not mean that you don’t have to pay the loan. More often, a third-party debt collector is appointed to manage the unpaid debt on behalf of the original lender. This generally happens when the debt is unsecured, and once again the account may appear on your credit report as an account in collections. So, any lag in payment to the collection agency could mean further damage to your credit. Most of all, a charge-off stays on your credit report for seven long years.
How Can You Get Rid of a Charged-Off Account?
Since creditors take charge-offs seriously, knowing how to remove any derogatory marks from your credit report becomes very important. The very first step, if you’re not sure why your account has been charged-off, is to verify each information on your credit report. This can be the case if you don’t know what may be affecting your score. In case you find any error, you can approach the credit bureau, and they’ll investigate within 30 days only if they don’t consider your dispute frivolous.
Once you know the entry is legitimate, you can try to negotiate with the original creditor before the third-party debt collector takes over your account. This time you should be very sure of being able to pay the debt in full, only then you can expect the creditor to remove the charge-off note from your reports. On the other side, even if your creditor has sold the account to a collection agency, you can pay the entire debt amount to the agency and request them to change the report status as a paid collection.
Remember, a paid charge-off or collection is better any day than an unpaid account. You will be eligible for getting a final payment letter after you’ve paid off the debt, either from the lender or the third-party debt collection agency. This letter acts as proof in case you want to get your reports corrected after paying a charge-off in full.
How to Avoid a Charge-Off
The simplest way to avoid any derogatory mark on your credit report is to make payments on time or at least pay the minimum payment amount every month. You can always talk to your credit card issuer if you cannot keep up with your payment schedule. So, while six months is a relatively good amount of time to catch up on missed payments, you can arrange funds meanwhile to make payments and avoid a charge-off.
All in all, you should try to keep your credit report as clean as possible if you know you may need additional funds at any time in the future.