What Does “Charge-Off” Mean on a Credit Report?

(And What You Should Do Next)

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If a charge-off appears on your credit report, you’re not alone. Many consumers don’t know what to do about it, or how it impacts their credit. In this easy to read guide, we’ll simplify everything you need to know – including how to protect your score.

What Does Charge-Off Mean on a Credit Report?

A charge-off occurs when a lender deems the debt uncollectible. \
A lender typically charges off an account after 180 days (or 6 months) of nonpayment.

What this process does mean and does not mean:

What it DOES Mean

• The lender has stopped internal collection efforts.
• The lender must write the account off as a loss on their balance sheet.
• The lender will submit the charge-off to the credit bureaus, which will subsequently appear on your credit report for a period of up to 7 years per the Fair Credit Reporting Act (FCRA).

What it DOES NOT Mean

• It does NOT eliminate your debt obligation.
• As long as your creditor did not forgive debt, you’re still legally responsible for the remaining balance.
• A charge-off still may be sent to collections and/or sold to a collection agency.

According to the FCRA §611, you have the right to dispute any information that is inaccurate, incomplete, or cannot be verified. \
Thus, if the charge-off itself was reported incorrectly, you may appeal to the credit bureaus to investigate.

Does a Charge-Off Affect My Credit Score?

Yes – charge-offs significantly negatively impact your credit score. \
Although a lender and credit reporting agencies cannot access your credit score directly, these institutions see charge-offs as severe delinquency.

Your charge-off will impact:

• Your payment history (35% of your FICO score most importantly)
• Credit utilization
• Total credit risk

While unpaid charge-offs do stay as such, paid charge-offs show up as paid charge-offs or paid collections. \
Some lenders may prefer seeing payment history over no payment history at all, but neither look good.

Will a Charge-Off Be Removed From My Credit Report?

A charge-off may or may not be removed depending on the circumstances; \
However, if an account is inaccurate, incomplete, or can not be substantiated, the answer may be yes.

According to the FCRA, you can dispute a charge-off if:

• The balance is inaccurate
• The dates are wrong
• It’s not your account
• The account was opened during an identity theft experience
• There is no proper documentation by the end creditor
• The account continues to update inaccurately as it’s been transferred or sold away previously

Additionally, under the FDCPA §809, if a debt collector takes interest in this situation, you can request validation. \
Creditors need to prove that a debt is valid; otherwise they cannot take you to task for it.

If it’s not valid… it must be corrected or deleted.

Should I Pay A Charge-Off?

Not always.
Paying a charge-off makes sense depending on your situation if:

• You’re planning on applying for a mortgage soon
• You want to show that you paid it by marking it as a paid charge-off (some lenders like to see attempts at credit repair)
• You can get the creditor to update reporting post-payment
• You can negotiate them down with a settlement/acceptance amount at a percentage of what you owe

Paying a charge-off does NOT make sense if:

• The charge-off is older than 7 years
• You can’t afford the lump sum payment
• A debt collector can’t validate it (in which case payment is not an option)

If you’re able to pay – always do so in writing for proper validation.

What Are The Next Steps If I Have A Charge-Off?

A few key action items include:

1. Review your credit report from all three major credit bureaus.

Equifax, Experian, and TransUnion often present different information; sometimes inaccurate reporting can happen because an error occurs at one creditor and not another. \
You can access all three here through IdentityIQ: \
👉 https://member.identityiq.com/creditpreferred.aspx?offercode=431284YF

2. Verify what’s being reported.

Make sure that:

• The dates are correct
• The balance is accurate
• The status is accurate
• You’re not seeing duplicate reporting of the same account
• The accounts belong to you

3. Dispute anything that’s inaccurate or unverifiable.

Under FCRA §611, you’ll have 30 days for a credit bureau investigator to respond to your findings.

4. Get validation of debt if it’s from a collector.

Under FDCPA §809, collectors must prove that what they’re validating is legitimate – even new creditors getting involved down the line need documentation for validation.

If they can’t – it’s moot.

5. Start rebuilding good credit ASAP!

You want as little negative reflection as possible in your credit profile, therefore in addition to adding new positive accounts, make sure you pay every bill on time and do not let your credit card utilization go higher than 30%.

How Long Does A Charge-Off Stay On My Credit Report?

Under optimal conditions, a charge-off will last on a credit report for 7 years from date of first delinquency.

This means that most debts last 7 years unless otherwise defined by false reporting – which can and should be challenged for correction once information proves inaccurate.

In addition, if identity theft caused the debt and it’s been documented with other organizations, you can ask for removal based on:

15 U.S.C. §1681c-2 – Block of Information Resulting From Identity Theft

Can I Rebuild My Credit After A Charge-Off?

Yes! At Maximum Fico Score, many clients come in with low 500s scores who’ve had charge-offs in the past; within months of following our specific program, we’ve seen clients above 700 once again – if they follow all steps provided and learn new successful habits moving forward.

For more help – including:

Keep credit card balances low

Pay every bill on time

Add new positive accounts

Monitor all three bureaus every month –

If you need help analyzing all reports and creating your own personalized roadmap to success:

👉 Book your FREE credit consultation\
www.maximumficoscore.com