According to the experts at SoFi, a charge-off is when a debtor hasn’t made a payment on an installment loan or a credit card for 120 to 180 days. Creditors determine that debtors aren’t likely to become current with the payments at this point, so they consider these charges to be losses and close the debtors’ accounts.
What Does a Charge Off Mean for the Debtor?
The creditor may decide that it isn’t worth trying to collect on the debt, but this doesn’t mean that the debtor no longer owes the creditor. The creditor can still pursue the debt and hire a debt collector to make the debtor pay, or she can sell the debt to a debt collection agency. The next thing consumers need to ask is, “What is charge off on a credit report?”
This question is very important because a charge-off can have serious implications for consumers’ credit reports. The debtor is still responsible for the debt, and the creditor will report this to the credit bureaus for up to seven years.
How Does a Charge Off Affect Consumers’ Credit Scores?
Before an account charges off, the consumer must miss several payments. This is a major reason why people’s credit scores begin to go down. After the creditor lists the account as a charge-off, the person’s credit scores go down even further.
If the creditor sends the account to collections, this makes a very bad situation even worse. That’s because the collections agency can begin to report to the credit bureau if the consumer is not making payments.
How Do You Rectify This Situation?
Consumers in this situation can begin to show that they can use credit responsibly. It may take about two years, but their credit scores will begin to show that the consumer is becoming responsible consumers by paying the bills on time and never missing a payment.
The other thing that consumers need to do in this situation is to repay the debt. They are legally required to do so, so they must accept this responsibility. The simple truth is that the charge off is not going to disappear, so it isn’t a good idea to pretend that it will. By doing so, consumers can hurt their chances of obtaining a mortgage loan. For example, a lender may require that an applicant pay all outstanding debts before granting the applicant a home loan.
What If You Don’t Owe the Debt?
Sometimes, the charge-off can be in error. In that case, consumers should not pay those debts. If the debt doesn’t belong to the consumer or the debt does not come off of someone’s credit reports after seven years, the experts at SoFi suggest that they dispute those charges. The credit bureaus are required to investigate these claims and will review them within 30 days.
A charge-off is a derogatory mark on consumers’ credit reports, so they must address them as soon as they possibly can.