A charge-off is a creditor's announcement that a certain amount of debt is impossible to be recovered. This happens when a person is seriously overdue on a loan. In fact, borrowers will make this statement after six months of not receiving a single payment from the customer. A charge-off does not imply that the debt does not exist.
What Effects a Charge-Off Has on Your Credit Score.
Charge-offs appear as a result of late fees, and are reported on the credit report.
Charge-off balances have a negative impact on the credit score of the credit report. A single charge-off will lower your credit score by up to 100 points or more.
When an account becomes charge-off, it becomes a negative remark on the record. This remark appears on the credit record for up to seven years from the first date of delinquency.
How Can I Have a Charged-Off Account Removed From My Credit Report?
Normally, removing a charge-off from a credit report will include calling the initial borrower and negotiating the withdrawal. In return for settlement of the owing debt, the original creditor must be convinced. Negotiation is more effective when an individual has the requisite funds to pay off the debt. However, in some instances, the charge-off persists on the credit record long though it has been charged.
A charge-off debt does not mean that the individual is no longer required to repay the debt. Later, the borrower can sell the charged-off debt to a third-party collection agent, who would then proceed to recover the outstanding account from the customer. The borrower now effectively owes the loan until it is paid off, settled, discharged in bankruptcy, or becomes too late due to the statute of limitations.
The statute of limitations is the time period during which a penalty may be recovered in the legal justice system. When the term of limitations expires, the loan is deemed too old to pay. And when the statute of limitations has expired, the charge-off status can also appear on the credit sheet. In such a case, the consumer cannot be prosecuted for the outstanding debt. In fairness, the consumer has the right to sue the collection agent for taking the creditor to court over a debt that has passed the statute of limitations. The borrower may even sue the collection agent if it tries to recover an old debt after being told not to touch the customer and does so instead. In such situations, the Fair Debt Collection Practices Act (FDCPA) covers the borrower.
In the opposite, the removal of the charge-off status from the debtor's credit record does not actually mean that the statute of limitations has expired. And if the charge-off was excluded from the credit report after seven years, the statute of limitations could also apply. When this happens, the claimant will also be taken to court for a verdict on his outstanding debt. The statute of limitations vary by state and can range from three to fifteen years, depending on the circumstances.
How Will a Charge-Off Be Avoided?
It is still preferable to save an account from going into charge-off mode. To prevent this from happening, it is best to pay all of the current bills on schedule, never be late or delinquent on payments, and keep all of the accounts in good condition by paying off the account balances, which would result in the credit score being recovered.