What is a Charge-Off?

Chronic late payments are the antithesis of credit repair. When you haven’t paid a bill for 180 days or more, you’ll likely face the consequences of a charge-off. Don’t allow bad habits to ruin your financial stability. Know your facts and learn how to avoid long-term mistakes.

Charge-Off Basics

When a customer fails to pay an outstanding debt, a creditor can “charge-off” the amount, allowing the company to claim the balance as a business loss on their taxes. To rid themselves of the account, they may sell your debt to a collection agency for pennies on the dollar. Once the collection agency owns your debt, they will attempt to contact your in order to recoup the remaining balance.

What will happen to my credit score?

Charge-offs carry long term credit effects, remaining on your report for up to seven years. When it comes to damage, the Payment History factor is affected, a category that accounts for 35 percent of your overall credit score. Consequently, a charge-off has the power to significantly lower your credit score as long as it remains on your report, affecting your ability to secure new financing, low interest rates, low insurance premiums and even employment opportunities.

Does My Debt Disappear?

No. Since your remaining debt is sold to another company, they can still attempt to collect the balance. However, there are many issues to consider before paying a collection agency: debt validation, re-aging, additional credit damage, and more. Ask a professional for advice before working with these companies directly.

Can I avoid charge-offs?

Absolutely. Avoiding negative marks on your credit report is a must in order to maintain a healthy score. Keep charge-offs at bay by:

-Paying bills on time. While the average charge-off can take five months to materialize, the long-term damage done in the meantime can be overwhelming. Keep track of your bill payments and strive to meet your financial commitments.

-Communicating with creditors. If you’re having money troubles, it’s important to communicate with your creditors to inform them of the situation. Silence implies indifference; contact implies interest. Be proactive in your fight against credit damage. Ask your creditors what you can do to avoid negative citations.

-Working with a professional. Budgeting is the cornerstone of healthy credit. If you are having trouble with money management, contact a credit repair professional to learn more about how to organize your life. Avoiding charge-offs is possible with the right tools.