Friday, November 19, 2004

How Long Can a Charge-Off Affect Your Credit?

Creditors and lenders extend loans and lines of credit. In exchange, they expect account holders to make timely payments each month to repay funds. But occasionally, account holders fall behind and stop paying their lenders and creditors. After several months of nonpayment, creditors and lenders may charge-off or write-off the debt.

Definition of Charge-Off

    Original creditors and lenders make several collection attempts before charging-off a debt. This occurs after a creditor concludes that a debtor has no intentions of repaying a debt--usually after 180 days of nonpayment. Creditors and lenders write-off the debt for tax purposes, and often sell the account to a collection agency. Collection agencies then resume collection attempts by means of telephone calls or letters.

Charge-Offs and Credit Reports

    A creditor or lender charging-off a debt doesn't mean a debtor escapes consequences. Even if a creditor sells the debt to a collection agency, information regarding the charge-off account will appear on the debtor's credit report. This information is temporary, but remains for a period of seven years. Plus, a collection agency or creditor may threaten or file a lawsuit in order to recover unpaid balances.

Affects of a Charge-Off

    In conjunction with staying on credit reports for seven years, charge-offs can affect personal credit history in several ways. This type of negative information lowers personal credit scores. And when future lenders check credit reports to assess an applicant's creditworthiness, a charge-off or collection account can negatively impact approval chances or result in a much higher interest rate due to the applicant's increased credit risk.

Removing Charge-Offs

    Paying a charge-off account balance can help fix a poor credit history. Creditors and collection agencies are relentless in communication attempts, and scheduling installment payments to satisfy an old debt may convince the creditor or collection agency to update your file (after receiving the full payment), and include a notation stating that you paid the charge-off. Depending on the particular creditor, they may go as far as deleting the the charge-off from your record. This gesture isn't a requirement, and removing a charge-off may require specifically asking for a deletion.

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