What is a charged off account and how does it affect my credit?

We are frequently asked about charged off accounts and how it affects credit scores. Here is what you need to know…
 
What is a charge off?
 
When a creditor notifies credit bureaus that it has charged off a debt, it means the creditor has given up on trying to collect an unpaid debt.
 
This would happen when someone becomes severely delinquent (typically about six months without payment) and the creditor writes off the debt as a loss in their own accounting books. Since it is unlikely it will be paid in the near future, it can’t be carried on the books as a current asset, therefore the debt is charged off.
This however does not mean you are no longer obligated to pay the amount owed.  As long as the charge-off remains unpaid, the creditor can continue attempts to collect on the account and that may include suing you for what you owe.
 
How does a charge off affect your credit score?
 
A charge off is a negative mark on your credit and one of the worst items you can have on your credit report.
 
Here’s why:
  • 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.
  • Once a charge-off is on your credit report, it will remain there for seven years from the date it was charged off.
  • Future creditors and lenders may deny any future credit card and loan applications, if they see a charge-off on your credit report.
 
It is definitely in your best interest to remove charge-offs from your credit report and with some effort we can reduce the negative effects of this type of entry.
 

Call or email us today if you have questions.

 
Erik Kaplan
THD Credit Consulting
erik@thdcreditconsulting.com
(800) 822-7120
Send an email to asktheexpert@thdcreditconsulting.com to submit your questions.

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