Charge-offs leave a bad mark on your credit report for seven years, and if you attempt to get financing or credit before the credit bureaus delete the charge-off, you might deal with a denial. Charge-offs carry a lot of weight in the loan and credit approval process, so getting a loan quickly and easily will call for getting charge-offs off your credit history.
Explanation of a Charge-Off
If you don't pay what you owe your creditors, a charge-off can appear on your personal credit file. Charge-offs only occur after you default on a credit card balance or loan. Your creditors may call or mail payment reminders, but if you don't make a payment arrangement and you stop sending in the minimum amount due, creditors eventually write off the debt. Charge-offs typically occur after six months of missed payments. Creditors can continue efforts to collect the funds, or they can sell the account to a collection agency.
Deleting a Charge-Off
Legitimate charge-offs remain for seven years once they hit your credit report. This is because credit reports include a snapshot of your entire credit history. So even if you pay a charge-off, the fact that a previous creditor or lender had to write off the debt remains on your credit report. However, if a charge-off appears on your credit report in error, you can write a letter to the credit bureaus and the reporting creditor or collection agency to dispute the entry and request immediate removal. Bureaus, creditors and collectors have to investigate cases of erroneous credit report information and remove any inaccurate accounts.
Consequences
Removing an inaccurate charge-off is imperative because having this information on your file can harm your chances of qualifying for a home loan, car loan and even getting a credit card. Many companies, including potential employers and insurance companies, check credit reports. Because a charge-off reduces your credit scores, having one on your credit report can limit employment opportunities or trigger higher insurance premiums.
Paying Legitimate Charge-Offs
Even though a creditor or collector will not delete a charge-off once you pay the debt, paying this old debt can help your credit history. This is because creditors often update previous notations and change the status of an unpaid charge-off to paid. This lowers your risk as a borrower, which can help you meet the criteria for loans, credit cards and other types of financing.
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