It can impact your credit score if you’ve ever made late payments or failure to pay your credit card in full. However, if you ignore the situation and allow the charge-off balance to remain on your credit report without paying it, it can have a negative impact on your credit in multiple ways.
1) What is a Charge Off?
A charge-off is when a creditor writes off your debt as a loss. This usually happens when you haven’t made a payment in six months or more. So what happens when a credit card is charged off?
2) How Long Do Charge-Offs Stay On My Credit Report?
The length of time that a charge-off remains on your credit report varies from one creditor to another. Most charge-offs stay on your credit report for seven years from the date of the first missed payment that led to the charge-off. However, this doesn’t mean your credit score will be impacted for seven years.
The experts at SoFi state, “The more serious charge-offs will stay on your credit report for longer.” For example, if you default on a federal student loan, it will be reported for seven years from when you stopped making payments.
3) If I Pay My Charge Off, Will It Improve My Credit Score?
Many believe paying a charge off will improve their credit score, but this is not always the case. In fact, in some instances, paying off a charge off can actually cause your credit score to drop.
4) There Are No Do-Overs When It Comes to Charge Offs
Once a charge-off is reported to the credit bureaus, it will remain on your credit report for up to seven years. This can significantly impact your credit score, making it difficult to get approved for new lines of credit or loans.
But don’t worry. There are several things you can do to mitigate their impact on your credit:
1. Consolidate all debts into one easy payment;
2. Request lower interest rates;
3. Pay down balances faster than required by the terms of the loan/credit card agreement.
4. Try contacting the original creditor who charged off your account to see if they will remove the charge-off from your credit report.
If you could not repay an account before companies charged it off, contact the creditor and request that they remove the charge-off from your credit report.
5) What Types of Debts Are Considered Charge Offs?
Charge-offs can include any type of debt. They are most commonly seen with credit cards, auto loans, and mortgages. When a debt is charged off, the creditor has given up hope of ever collecting the money owed.
6) Can’t I Just Pay the Bank Directly and Avoid Getting a Second Mortgage?
No, you cannot. Once a charge off is reported, it will remain on your credit report for up to seven years, and there is no way to remove it other than by waiting for it to fall off naturally.
7) If You Need Money, Consider Using All Available Resources Before Filing for Bankruptcy
You should always try to avoid bankruptcy if possible. Not only does it hurt your credit score, but it also stays on your credit report for up to 10 years.
Paying a charge off will not improve your credit score. A charge off can stay on your credit report for up to seven years and will continue to negatively impact your credit score.