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Charge-off accounts is an account that the creditor deems as no longer collectible and is written off by the original creditor as a loss. In other words, you have stopped paying your credit card. Typically a creditor will charge-off the account in 180 days up to 6 months.
Obviously the creditor has closed the account and you will no longer be able to use this card. The charge-off accounts will be reported to the credit reporting agencies and noted on your credit file. This negative notation or derogatory account can remain on the report for up to 7 years + 6 months. This will in some cases prevent you from being able to get additional financing for things let a car or home and possible even renting a home. You may also be required to have a security deposit for cell phone service or utilities.
Avoiding charge-off accounts on your credit report can be easy in some cases but there are some circumstances that make it unavoidable. Some examples of an unavoidable situation might be the loss of a job or sudden medical situation that exhausts all of your income.
To avoid a charge-off accounts you need to be sure that you are managing your finances correctly. Maintaining a budget is always the best way to prevent this type of situation from occurring.
Make sure that you don’t overspend. Impulse buying with your credit card must be avoided. Make sure that you keep your credit card balances below 30% of the allowable credit. Set up a reserve fund so that in the unforeseeable event of a job loss you can still make payments until you are able to find new employment.
If you find yourself in a situation where you are no longer able to make payments on your credit card make sure you speak with your credit card company. You may be able to get a reduction in monthly payment or freeze the account for a while until you are able to get back on your feet. Communication here, in the beginning, is the key.
If you are unable to make payments and you end up with a charge-off on your credit report your credit scores will definitely be affected. Your scores can drop approximately 60 to 150 points overnight.
There are a couple of options that you can consider when dealing with a charge-off. You may try to negotiate with the creditor or collection company for a settlement amount that is less than the original balance.
If you end up settling the debt you will still have a negative notation on the report “Settled for less original amount”. And again this can remain on the report for 7 years+ 6 months.
You may also be able to negotiate a “pay for deletion” scenario although this is highly unlikely.
If you are unwilling or unable to settle the charge-off you could be sued by the creditor or collection company. If this happens you need to know what the Statute of Limitations is for your particular state. If an account is beyond the statute of limitations you can then use this as a defense in court, but in the end, the judge will make the final decision.
Can Credit Repair remove Charge-Off Accounts from my Credit Report?
We have seen several cases where credit repair can remove a charge-off from the credit report because the account is “unverifiable”. Be advised this does not necessarily mean you are released from the obligation of paying the debt, but it can help to improve the scores if it is no longer reporting. One of the conditions that would cause the charge-off to be removed would be a “no response” from the collection company or if they are unable to validate the account information.
Regarding your obligation to the debt, the only way to release it is to settle the debt or if it is dismissed by the courts due to validation issue or it is outside the statute of limitations.
It is important to remember that you as a consumer have the legal right under the Fair Credit Report Act to challenge any information on your credit report.
