How Does a Write off Affect Your Credit?

There are more than a few reasons to maintain a strong credit score. High scores help you qualify for a loan at a good interest rate, lower insurance premiums and even help you get a job. But if you have negative items, such as charge-offs or a write-off, on your credit report, this can hinder your rating.

What is a Write-Off?

Creditors send letters and make calls to collect an unpaid debt for approximately six months. Borrowers who can't or don't want to pay typically ignore these collection attempts. After months of non-payment, creditors stop collection efforts and write off the debt. Debts written off appear as charge-offs on a borrower's credit report, which indicates to other creditors and potential lenders that the borrower didn't fulfill his financial obligations.

What Follows a Charge-Off?

Just because your creditor decided to write off or charge off an unpaid debt doesn't mean you've escaped your obligation to repay the debt. After charging off or writing off debts, creditors usually sell these debts to collection agencies. Once the collection agency owns the debt, it continues collection attempts, and some agencies even file lawsuits to collect the unpaid balance.

Consequences

A charge-off affects your credit history. For starters, the original creditor will report the charge-off on your credit report. And once it sells the debt to a collection agency, a collection notation appears on your report. Both are negative and will cause your score to drop. Charge-offs or write-offs, like other negative items, stay on credit reports for at least seven years.

Reducing Credit Damage

Paying a charge-off or collection account may not completely undo credit damage. Creditors and collection agencies are not required to delete negative account information once you decide to pay off the balance. However, they can update your credit report to show that you satisfied unpaid accounts. Your credit report will then read "paid charge-off" or "paid collection account." It's beneficial to satisfy old debts if you want to apply for a mortgage or auto loan. A charge-off can trigger a rejection or your lender may require that you satisfy the debt prior to accepting your application.