Charge off accounts are a type of delinquent debt that has been deemed unlikely to be collected by the lender. When an account is charged off, it is considered a serious negative mark on your credit report and can severely damage your credit score. In this article, we will discuss charge off accounts in detail, including what they are, how they impact your credit score, and what steps you can take to deal with them.
What is a Charge Off Account?
A charge off account is a type of delinquent debt that a lender has written off as uncollectible. This typically occurs after a period of six months of non-payment by the borrower. Once an account is charged off, the lender has typically given up on collecting the debt and may sell the debt to a third-party debt collector.
It’s important to note that a charge off does not mean that you are no longer responsible for the debt. You still owe the money, and the lender or the debt collector may continue to pursue collection efforts against you.
How Does a Charge Off Account Affect Your Credit Score?
A charge off account can have a severe negative impact on your credit score. The charge off will remain on your credit report for seven years from the date of the first delinquency. During this time, it will be visible to potential lenders and can significantly reduce your credit score.
Additionally, if the lender sells the debt to a third-party debt collector, the collection account will also appear on your credit report, further damaging your credit score. It’s important to note that paying off a collection account does not remove the charge off from your credit report.
What Steps Can You Take to Deal with Charge Off Accounts?
If you have a charge off account on your credit report, there are several steps you can take to deal with it.
- Verify the Accuracy of the Charge Off Account
The first step is to verify the accuracy of the charge off account. Check your credit report to ensure that the account is accurate and that the amount owed is correct. If there are any errors, dispute them with the credit reporting agencies.
- Negotiate with the Lender or Debt Collector
Once you have verified the accuracy of the charge off account, you may be able to negotiate with the lender or debt collector to settle the debt for less than the full amount owed. This is known as a debt settlement. It’s important to note that a debt settlement will still have a negative impact on your credit score, but it may be less severe than a charge off or a collection account.
- Pay off the Debt
If you are unable to negotiate a settlement, the next best option is to pay off the debt in full. This will not remove the charge off from your credit report, but it will show that you have taken responsibility for the debt and can help to improve your credit score over time.
- Rebuild Your Credit
Finally, you can work to rebuild your credit by making all of your payments on time, keeping your credit card balances low, and avoiding opening new credit accounts unnecessarily. Over time, these positive credit behaviors can help to offset the negative impact of the charge off account on your credit score.
In conclusion, charge off accounts are a serious negative mark on your credit report that can significantly damage your credit score. If you have a charge off account on your credit report, it’s important to take steps to deal with it, including verifying the accuracy of the account, negotiating a settlement or paying off the debt, and working to rebuild your credit over time. By taking these steps, you can minimize the impact of the charge off on your credit score and improve your overall creditworthiness.