Sometimes life gets in the way and you find yourself in a financial mess. Whether it’s your irresponsible spending habits or poor budgeting, there will be consequences. It starts off with your first missed payment and then it becomes six months of missed payments. When this happens, the creditor will assume that you’re unable to make payments and your account will be charged off. Continue to the article below to understand what this means for you and what actions you need to take.
What is a credit charge off?
A credit charge off means your account has been declared as uncollectible debt by the lender. When it comes to credit cards, it’s usually happens after 180 days of failing to pay the minimum payment. It’s important to understand that you’re still held accountable to pay all debt owed when your account has been charged off.
What happens when your account is charged off?
When your account has been charged off, the lender will stop you from making any type of payments which means you’ll have to go through a different process to pay off your debt. Policies will vary from lender to lender, but there are two different ways that you’ll pay off what you owe. Your account can be sold to a third-party collection agency where you will now make your payments. Or the lender will resolve the issue in-house where you will continue to make your payments.
How Can This Affect Your Credit?
If your account has been charged off, you can expect potential major damage on your credit score. It’s important to take immediate action to protect your credit score. Here are some ways your credit can be affected:
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Your credit score will be initially be impacted once the lender reports your first missed payment to the credit bureaus. Every missed payment within the six months before your account being charged off will affect your credit score as well. Your payment history is the most weighted factor in your credit score and will have the biggest impact.
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If your account is listed as a “charge off” account, it will be shown as a derogatory mark on your credit report. This will remain in your credit history for seven years. This will notify all financial institutions that you have failed to meet your financial obligations.
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After all the damage you’ve taken on your credit, you can expect a domino effect on other financial aspects. It will be difficult for you to be approved for loans. Mortgages, auto loans, student loans, and even personal loans will be difficult to attain. In addition, applying for credit cards will be troublesome and qualifying for competitive interest rates will be challenging.
3 Ways To Pay Your Charged Off Account
When your account is charged off, it’s your responsibility to pay off the debt you owe. Here are three best ways to pay off a charged off account:
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Pay Back Your Lender- If your account has not been sent to a third-party collection agency, it’s possible to pay back the lender. Be proactive in contacting your lender to resolve your missed payments. This can make the process easier for you. Avoid going through a new process with the collection agency. When your debt has been paid off, the status of your account on the credit report will be changed to “paid charge off.”
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Debt Settlement- If you’re financially struggling and don’t have the budget to pay off your debt, you can negotiate with your lender of the collection agency to settle the debt. If you’ve negotiated a settlement, your lender or the collection agency has agreed to accept an amount less than your original debt. If you go this route, your credit score will still be negatively impacted. When the settlement has been paid off, the status of your account on the credit report will be changed to “settled charge off.”
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Collection Agency- If your account is now with the collection agency, this is your only choice. It’s important that you verify your account with the collection agency before you begin to make payments. Make sure to contact your original lender to verify which collection agency is responsible for your account. Verify that all the information matches what your lender provided. When your debt has been paid off, the status of your account on the credit report will be changed to “paid collection.”
The Bottom Line
If you’ve missed six months or more in payments, it’s more than likely that your account has been charged off. It’s important that you understand what this means for you. Having a charged off account has many effects on your credit and other financial aspects of your life. Make sure you take immediate action to resolve your account. After the charged off account has been resolved, create an action plan to recover your credit.
Resources:
1. https://www.creditkarma.com/advice/i/what-is-a-charge-off/
2. https://finance.yahoo.com/news/credit-card-charge-off-132954116.html
