What Does Charge-off Mean on Your Credit Report?

  • By Greg Brown
  • Dec 19, 2022

what is charge-off

Credit profiles are a significant part of everyday life for business and personal. The long, fascinating, and twisted history of financial scores, claims to encapsulate a person’s attitude toward credit and debt. America’s transition to a modern capitalist nation and credit reporting began in the early 1800s when older financial systems became too cumbersome.

Access to credit scores, a dramatic rise in consumer borrowing, and increased living standards gave millions the American Dream of owning a home. Unfortunately, as the profitability of borrowing became popular, the practice displaced the fundamental necessity of on-hand business and personal cash.

Financial Identity

Monetary personalities are the skills and knowledge used to build personal or collective financial well-being. America’s financial identity, reflected by credit scoring, can be a life-long scar of destructive behaviors. These attitudes cannot be erased without a lot of work and time. Just as importantly, access to credit scores may compel a lifetime of good behavior.

The Fair Credit Reporting Act of 1970 began a new era in financial publishing. The landmark legislation required credit bureaus to open their files to the public, erasing data on race, sexuality, and disability. Negative information, such as late payments on financial obligations, delinquent accounts, and charge-offs, must be deleted after a specified period of time. 

Equifax, TransUnion, and Experian are the “Big Three” of consumer credit reporting. Every company that dealt with consumer credit files came away from the FCRA ruling with a huge black eye. 

1975, the Retail Credit Company, founded in 1899, changed its name to Equifax. Soon after widescale policy and name changes, Experian and TransUnion followed Equifax, and the Big Three moniker was coined. 

Demand for financial reporting skyrocketed; however, each firm was hamstrung by difficulty interpreting the varied credit files. Credit scoring algorithms developed by Fair, Isaac, and Company resolved the issues. The all-mighty FICO score from Fair Isaac, introduced in 1989, is still considered the all-in-one number of consumer lending. 

Negative and Positive Information

Credit is part of the power every individual and business holds. Each piece of information reported to the “Big Three” affects the ability to acquire the things we need, such as a car or credit cards. 1) Positive information tells the bureaus and the companies who make decisions on consumer loan products; the client is a safe bet within the confines of their past repayment history. 2) Negative information reduces the FICO score and raises a red flag for lenders, possibly for years to come.

Charge-offs

remove charge-off from credit report

There are several pieces of negative information that can impact a credit report. Depending on the particular circumstance, two or three offenses affect the creditor more than the rest. A charge-off is an entry on the credit file that you have not paid per the terms, and the account is closed. The account is most likely turned over to a third-party collection firm.

Entries on the credit file will be varied and may state anything from past-due to charge-off. If the account is paid before it goes into a charge-off status, it will be marked as a paid charge-off. 

Charge-offs impact the credit report in highly negative ways and will be tough to overcome. Perseverance is the key to overcoming a charge-off on the credit file, and it doesn’t happen overnight. Do not let deadlines pass if something can affect your file.

Charge-Off Timelines

  • Creditors may take up to six months if payments are delinquent and have not been made. 
  • After the first’s month’s delinquency, the account entry goes from: “Account in Good Standing” to Charge-off Status, Negative Item, or Delinquency, and a host of other negative names. Entries will indicate the outstanding balance and duration of the delinquency, with 30-day increments, up to 180 days. 
  • After 180 days, the creditor can charge off the account or continue in delinquency. 
  • Most assuredly, the creditor sells your account to a third-party collection company. The current charge-off entry on the credit file goes to a zero balance but remains as a charge-off. 

Most original lenders, collection agencies, or debt buyers report to one of the three major bureaus, and it is safe to say the credit file is heavily impacted. 

A charged-off account remains on file for seven years from the date of the first late payment or when the account was charged off. If the account is paid before the seven years, it remains on file though it may have a less negative impact. 

Removing a Charge-Off

Charge-offs are enormous red flags to any lender considering the client for future credit. Subprime lenders may offer terms on a personal loan; however, expect to pay thousands over in interest charges and loan costs.

Here are some steps to take if you want to repair your credit and try to remove the charges-off account. There is no guarantee any of the following will work. 

  • Examine your credit report for any information on the charge-off. Confirm the debt details, and look for any information, such as the third-party collection agencies, addresses, and contact information. 
  • Check the following details for any inaccuracies: Account number and original creditor name and phone number, open date and charge-off date, payment history, borrower names, and balance. It is not uncommon for creditors to mix up account numbers and names, so pay close attention to each detail.
  • If there are any inaccuracies, contact each of the bureaus immediately and inform them of what you found. You have the legal right to dispute the entry on the credit file if there is erroneous information. Be prepared to offer any and all documentation available from your side. Documentation may include invoices, statements, contracts, and so on. If there is inaccurate information, credit bureaus must remove the information and any supporting entries related to your account, including the charge-off. Bureaus must comply with the Fair Credit Reporting Act
  • As a general rule, decisions must conclude within 30 days
  • Try paying off the debt or talk with the creditor to negotiate terms on deleting the charge-off.

Don’t Give Up on Removing Charge-Offs from Your Credit Report

There is only one way to remove a charge-off legitimately: by a dispute with the credit bureaus or the original creditor. Good luck with your efforts.

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