How Harmless Is a Charged-Off Account?
After about six months, a creditor may assume that a debtor is not going to meet his or her obligations and pay the loan back. It may then move the account into the charged off status just so it can receive tax breaks and credits. However, the lender still may sell the debtor’s account to a collection agency, and it still may attempt to collect the debt that the person owes. The debtor will still make some type of effort to collect the funds that the debtor failed to pay when he or she had the chance.
Charged-Off Does Not Mean Forgotten
Many consumers misinterpret the term “charged off” to mean that a debt collector has completely forgotten about a debt. Such consumers may feel as if they are in the safe zone and repayment is not a necessary accomplishment that they need to achieve. To the contrary, a charged off account can act as a silent poison to a consumer’s profile. It can slowly taint the profile until a day comes when creditors no longer trust it.
The Negative Effects of a Charged-Off Account
A charged off account will remain on a consumer’s credit account for up to seven years unless he or she handles it in one of three ways. The preferred way for a debtor to handle a charged off account is to repay it fully. The person may make payment arrangements with the creditor and pay on the debts until they eliminate them. Another way that a debtor could handle a charged off debt is by disputing it through the credit bureau. A dispute is only acceptable if the account truly is not legitimate.
If the consumer does not conduct one of the previously mentioned actions, the charged off account will remain on his or her credit report for up to seven years. It can cause potential creditors to decline an application. All creditors know what a charged off account is. Therefore, they will look upon a person’s report negatively if they see more than one charged off account. However, they will look favorably upon an account that the creditor states has been paid off. Usually, the changes will appear on the report for at least 30 days.
To Pay or Not to Pay
Although it may be tempting for a debtor to ignore a charged off account because of its appearance, he or she should takes steps to clear it. Most of the modern-day creditors use the credit score and report system to judge whether they will assist a debtor or not. A person could have a decent job with a qualifying income and still receive a denial because of a charged off account. Lenders look at charged off accounts as the debtor’s dismissal of such. They want to feel secure about repayment, so they may respond to a charged off account in an unfavorable manner. A consumer should try to build his or her reputation up as much as possible by attempting to take care of debt.
Ways to Avoid Charged-Off Account
Consumers should make vigorous efforts to avoid getting into a situation that calls for a charged-off account. One way that consumers can avoid accumulating a charged-off account is by making timely payments every month. Consumers should create savings accounts that can serve as buffers when the going gets tough and timely payments are in jeopardy of not occurring. Another thing that consumers can do to avoid charged-off accounts is double up on their payments. Credit card companies appreciate when debtors double up on their payments.
Ways to Rebuild if a Charge-Off Occurs
A consumer can rebuild his or reputation even if he or she has been through several charge-off situations. One way a consumer can rebuild is to pay off the charge-off. Next, the consumer can get a secured credit card and make payments on that card every month in a timely fashion. The credit score will eventually elevate and the consumer will once again be able to obtain credit items. The person should never apply for credit if his or her life is not in order, however.