Unpaid balances will cause your credit score to drop, and you can expect your creditors to report the delinquency to the bureaus. Charge-offs are common following an unpaid credit card debt or loan. But lenders and creditors don't charge off or write off debts after one missed payments. This generally follows months of delinquencies and zero communication.
Explanation of Charge-Off
Charge-offs are often referred to as write-offs, and this occurs when a lender concludes that a debtor will not pay a credit card statement, loan or other type of debt. Charge-offs can take effect after defaults are 120 days old (four months of non-payment). Failing to make debt payments results in a credit card company or bank taking a loss. To compensate for this loss, banks and credit card companies can write off the debt on their yearly income taxes.
Early Process
Banks and credit card companies do everything possible to recover a debt before charging off the account. Attempts can include notifying debtors by telephone to offer payment solutions such as a lower monthly payment or extended due date. Letters are often sent as a means to communicate with debtors. But if bank or credit card company does not receive a response, and if an account stays in default status, creditors have no other recourse than to charge off the balance.
Collection Agency
A charge-off doesn't exempt a debtor from paying a debt. This simply means that a creditor will slow down effort to collect the debt. However, it's not uncommon for a creditor to sell a charge-off debt to a collection agency. Collection agencies then resume collection attempts. Letters and telephone calls are typical, and if these methods don't generate a response from debtors, collection agencies can file a lawsuit to force payment of a debt.
Paying a Charge-Off
Satisfying a charge-off eliminates this debt and stops collection efforts from agencies. But creditors report charge-offs on credit reports. Paying the debt doesn't erase the derogatory information. Charge-offs stay on reports for seven years, but creditors and agencies will notify the bureaus of paid charge-offs, which can work to your advantage when applying for other loans and credit.
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