How to Explain Charge Offs

A charge off often appears on a credit report after a person has been denied a loan or other form of credit. Some people get upset and angry because they don't understand what a charge off is or how it negatively affects credit. A correct explanation of charge off can help to defuse an already upsetting situation. Explaining a charge off doesn't have to be a complicated or confusing process if a few simple, necessary points are made.

Instructions

1

Provide information about the definition of charge off. It is important to remember that a charged-off debt is beyond a past due debt and is not considered to be collectible. Charge-off is an accounting term used to remove a debt from a company's assets when that debt is no longer considered to be collectible. Once a debt has been charged off, it can be sold to other debt collection agencies. Those agencies can continue to try to collect the debt and report their efforts to the credit bureaus. The original creditor can't continue to collect interest on the debt, however, the agency purchasing the debt can.

2

Explain how a charge off negatively impacts credit. A debt considered to be a charge off is more serious than a past due debt. Charge offs generally can't be removed from a credit report for 7 years from the date the charge off first appeared on the report. Past due debts reflect that the debt is still active but past due. It is difficult to obtain credit while the charge off is still on the credit report. Potential creditors view a charge off as a black mark on a credit report. If credit is obtained, interest rates will likely be significantly higher.

3

Recommend ways to avoid future charge offs. Keeping an open line of communication with creditors and making regular payments on past due debt before the debt is charged off shows that you are willing to work with the creditor. The creditor will report to the credit bureaus that regular payments are being made. After several payments, the past due debt can be reclassified as current and the charge off can be avoided.