Making the decision to fix your past credit history and build a better score may include deciding whether to pay a charged-off account. Charged-off accounts stay on credit reports for seven years plus 180 days, and non-payment of this debt can hurt your financing options.
What is a Charge-Off?
Charge-off is another term for creditors writing off a debt due to non-payment on an account. Creditors periodically review past-due accounts; and once a particular account goes without payment for 180 days or six months, creditors may sell the account to a collection agency and then write off or charge-off the debt. Creditors charge-off debts for income tax purposes in order to write off the loss.
Consequences of a Charge-off
Other than the fact that a charge-off remains visible on credit reports for seven years, having this type of information on your credit file can decrease your personal FICO rating. Bad credit negatively affects financing options with regard to buying a car, purchasing a home or acquiring other lines of credit. Lenders are less eager to approve an application when a borrower has a record of defaulting and ignoring past-debt obligations.
Paying a Charge-Off
Paying off an old charged-off account is financially responsible; and according to Bankrate.com, a charged-off account is a top reason creditors and lenders deny applications. However, the decision to pay a charged-off account depends on how this negative information currently affects credit. Credit damage from a charged-off account can improve with time; and if a charged-off account is five or six years old, some debtors may decide to wait until the negative item expires and falls off their credit report. But if applying for a mortgage loan, lenders may hold off approving the loan until an applicant pays or satisfies a charged-off account.
Considerations
Satisfying charged-off debt doesn't remove the item from your credit file. Nonetheless, creditors should update your credit report and list the charged-off as "paid." Some debtors have had success with getting a charged-off account completely removed from their credit file. Simply asking a creditor to delete the item can prove effective, but creditors are not obligated to remove the charge-off. If your creditor agrees to remove the charge-off, get written confirmation, and then check your credit report (annualcreditreport.com) after a few months to verify removal of the item.
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