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7 Essential Facts about Charge-Off Accounts

One Charge-off account can take up to 150 points off an excellent credit score. The higher your score was to start with, the greater the damage will be.

When an account is charged-off it means that a creditor no longer expects to be repaid and writes off the account as a bad debt. A creditor typically waits 180 days, or six months, of non-payment before charging-off a debt.

But a charge-off does not mean you no longer owe the debt. Your creditor will add the charge-off account to your credit reports and continue to attempt to collect on the debt. Creditors may choose to handle collections in one of three ways:

  • Try to collect the debt itself.
  • Hire a collection agency to collect for them.
  • Sell the debt to a collection agency.

Here are 7 Facts about Charge-offs

1. How many points will a credit score decrease?

A charge-off is considered a significant event with regard to your score and will likely have a severe negative impact. FICO, the most widely used credit scoring system says a charge-off can take up to 150 points off a credit score.  The higher your score was to start with, the greater the damage will be. And, keep in mind, it’s not just one credit score. Most consumers have at least 3 credit scores — One at Experian, Equifax and Transunion that will be affected.

2. Determine how long a charge-off remains on reports?

The charge-off account will be deleted 7 years from the date of the first missed payment that led to the delinquent status. It is also referred to as the original delinquency date. If a creditor transfers or sells the charge-off account to a collection agency, the original delinquency date that determines how long the charge-off remains on credit reports does not change.

3. Can both a charge-off and subsequent collection account appear on credit reports?

Both the charge-off account and the collection account can appear on credit reports. With both negatives on your credit reports a credit score can really take a dive. The good news is collection accounts are treated as a continuation of the original account. As a result, the original delinquency date also determines when collection accounts are deleted. If a creditor transfers or sells the charge-off account, it does not extend how long the both negatives remain on credit reports. Many times charge-off debt gets sold from one collection to another. But you should not have the same debt reported from two different collection agencies.

4. Can creditors remove charge-offs before 7 years in exchange for payment?

A creditor will almost never agree to remove an accurate charge-off from credit reports. Creditors have a contract with the credit bureaus that they will not remove negative information as a method of collecting debts. But if there are inaccuracies in the charge-off listing they can be disputed. You can always try to get a creditor to delete a charge-off as a gesture of goodwill. But they are not obligated to agree. If you get a settlement agreement with a “deletion” included you have hit a home run. The alternative would be to settle for a notation of “paid” or “closed.”  The good news is once a charge-off begins to age, it will have less effect on credit scores.

5. Will entering a payment plan re-start the charge-off removal date?

Entering a payment plan will not restart the clock for removing the charge off from your credit reports. There may be a case of re-starting the clock if you opened a new account and rolled the old debt into it. Because lenders and collection agencies are required to report the original delinquency date of the debt which starts the clock ticking on the 7-year reporting period, that date cannot be changed. The charge-off account will still be removed once the 7 years is up, even if you are now making payments on the debt. Paid charge-offs still have the same negative impact on credit scores but if you are seeking a mortgage or auto loan it looks much better to lenders when charge-off accounts are paid.

6. Creditors can continue to update charge-off accounts

Some creditors may continue to update a charge-off account status monthly for as long as it can remain on credit reports. If the debt has been sold to a collection agency, then the original creditor should be reporting a zero balance on the account.

7. Can you recover credit scores after a charge-off?

All is not lost when you have a charge-off account. You can recover your credit score by making on-time payments on ALL of your other accounts and simply by giving it some time. As the charge-off gets older, it will have less impact on your credit score, especially if it’s outweighed by other positive information.

In a 2014 study by the Urban Institute, Delinquent Debt in America, it was found that among adults who have a credit file:

  • 35% of U.S. consumers (77 million) have a debt or unpaid bill that has been sent to collections, and
  • 5% of U.S. consumers have a recent debt or bill that is more than 30 days late.

Charge-off accounts should be avoided by any means necessary. It is detrimental to a credit score.

4 Comments

4 Comments

  1. Janice Viesel

    July 9, 2016 at 1:33 pm

    Hi Lisa, I Have a question… I have been wrestling with Midland credit management on two account that were charged off. Quick explanation.. My husband, who was the bread winner in our family, He made plenty of money to support us, then got sick in 2012 (Cancer), the V.A. through him under the bus.. (they removed half his right lung in Vietnam 1978 yet refused to compensate him)finally gave up trying when he passed away at age 60…. on 01/06/2015. The collection accounts on my reports, I tried to settle with the original companies, but they would not settle for what I could afford. So after no success with that, I had to let it go & they charged them off. These card accounts were sold 2 or 3 times ending up with Midland. There were even times when mutable collection companies were reporting the same accounts for collection. I ask the 3 credit reporting companies to verify why so many different companies were after the same accounts, asking for help. They only said the accounts were mine… that was a big help! Not! I sent a letter to Midland (the proper way) asking for validation & documentation. I read that credit card debt can not be collected by junk debt buyers. Midland refuses to validate the accounts. This has been going on for 3 months now. I’m trying to find the final way to get these off my reports…Do you think my best bet is to send all exchanged letters between myself & midland to the 3 reporting companies, or should I start a lawsuit against Midland? It’s been a rough time to say the least… but, I am determined to see this to the end. I know that as a citizen of the united states I have some rights that only few people are aware of, but I’m trying my hardest to put this behind me as much as I can. Thank you very much if you can help me know what to do next.. Sincerely, Janice Viesel

    • Lisa Phillips

      July 11, 2016 at 4:07 pm

      Let me first say you are a tough, resilient woman! I am glad to know you are going to see this through, that’s the only way to win. The only advice I can give you is the following:

      1. Know that debt validation is a powerful tool against debt collectors, however, it works best when consumers like you are willing to see it through to court action. That’s because the Fair Debt Collection Practices Act does not require debt collectors to respond to debt validation.

      2. Keep in mind the debt collectors, creditors, banks and lenders keep the credit bureaus running by paying a fee to them in order to report on consumer’s credit files. I say that to mean credit bureaus are not likely to respond favorably to you even though you can reasonably show Midland cannot verify/validate the debt.

      3. Before you pursue legal action or send a letter to the credit bureaus, I suggest you make a complaint with the Consumer Financial Protection Bureau. The complaint should specifically state that Midland refuses to respond to debt verification but continues to report unverified debts to the credit bureaus. The resolution you are requesting is that Midland delete the negative accounts they are reporting to the credit bureaus. In 2015 there was an Order obtained by the CFPB for Midland to stop collecting debts they can’t verify. What they are doing is in violation of that Order. Submit CFPB Complaints here.

      4. If there are still multiple debt collectors reporting for the same debt you can go directly to the Consumer Financial Protection Bureau to make a complaint about the credit bureaus inaccurate reporting.

      The best of luck to you!

  2. LaFleure

    May 7, 2016 at 5:24 pm

    Hello, I have a charge off that is being reported on Equifax only. It is due to be removed dec2016. should I try to dispute the information? or just let it fall off. thanks for a speedy answer.

    • Lisa Phillips

      May 15, 2016 at 12:48 pm

      I would definitely leave it alone. You don’t want to risk disputing the charge-off then having the date of last activity being updated to a current date. It will make the charge-off look newer and may cause adverse consequences to your FICO scores.

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