Many Americans believe they are out of the clear when credit card companies suddenly stop calling in order to collect on a debt. Unfortunately, this couldn't be further from the truth. Whether it takes one year or five years, credit card companies always collect on their debt. Luckily for you, credit card charge-offs can be avoided and removed from your credit report once you choose to actively investigate and resolve the debt.
What Is A Credit Card Charge-Off?
Credit card charge-offs are the result of credit card companies declaring your debt (or outstanding balance) as a loss. If you have failed to pay your outstanding balance with a creditor for a few consecutive months, in most cases three to six months, your lender will note the account as charged off.
A charge-off is not a license to forget about the outstanding balance you owe a creditor. Just because your lender wipes their hands clean of trying to recover your unpaid balance at the moment doesn't mean you are in the clear. Instead, you still owe the balance due and creditors will still continue to come after you for the debt.
The Effects Of a Charge-Off On Your Credit Report
Having a charge-off on your credit report is detrimental to your credit score and overall credit worthiness. In fact, these types of negative marks on your credit report have a seven-year staying power and can prevent you from obtaining future credit as lenders will view you as a credit risk.
Even after your account has been charged off, credit card companies operate within their legal right to obtain the monies due them. In most cases your debt is sold to a collection agency for sometimes pennies on the dollar--despite whatever your balance may be. Collection agencies then become the owner of your debt and will seek to recover as much of the unpaid balance as possible.
How Can You Avoid a Credit Card Charge-Off?
In order to avoid a credit card charge-off or seek to have it removed from your credit report, you'll need to understand how to effectively deal with creditors.
There are ways in which you can avoid a charge-off altogether if you find yourself unable to pay your bills. The worst thing you can do is ignore the situation by screening your calls and not leaving the lines of communication open between yourself and your lender.
Creditors are willing to work with you if you explain the reasons for your inability to pay your account balance. Many times you can work out what is known as a payment plan where your lender will allow you to make reduced payments in order to meet your financial obligations. While this may increase the amount of time you'll have to carry your balance, it also helps you avoid a negative reporting on your credit report.
If you find yourself already past this stage, all hope is not lost as you still have the option to work with creditors or debt buyers to remove the charge-off from your credit report. In most cases your lender or new owner of your debt is seeking to settle the matter anyway possible, usually in the form of a reduced payoff balance. You can negotiate with collection agencies in order to have the debt reported as "Paid" on your credit report. For information on how to remove charge-offs from your credit report. While this step will take quite a bit of persistence and paperwork, it will help you and your credit report in the end.
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