Many people forget to pay a bill every now and then. However, if you go too long without paying, you might see a charge-off on your credit report.
If this happens, you will likely wonder, “What does a charge-off on my credit report mean?” Here’s a closer look.
What Is a Charge-Off on a Credit Report?
If you miss a payment on a credit card, loan or other debt, the creditor will usually try to contact you to arrange payment. However, if the creditor has already spent considerable time trying to collect and believes you won’t pay, it may classify the debt as a charge-off.
When a creditor classifies a debt as a charge-off, it means that the creditor has written it off as a loss. You still owe the debt, but the creditor has given up on trying to directly collect it.
Many people mistakenly believe that a charged-off debt is the same as a debt in collections. That’s not exactly true.
Instead, a charge-off is generally the last step before the debt is sent to a collection agency.
Is a charge-off worse than a collection? Typically not. Instead, a charge-off leads to a collection, which can result in severe consequences.
Once a creditor sends a charge-off to collections, a third-party debt collector may take aggressive actions — including, in some cases, filing a lawsuit — to collect the debt.
How Do I Remove a Charge-Off From My Credit?
Seeing an unexpected derogatory mark on your credit report can be alarming, and you will probably want to do whatever you can to remove it right away.
You might think that simply paying off the debt will remove the charge-off from your credit report. Unfortunately, this isn’t true.
According to Experian, when you pay a charged-off account, the account will be marked as paid on your credit report, but it won’t be removed and will remain on the report for seven years before falling off.
Typically, lenders view a paid charge-off on credit reports more favorably than an unpaid one. However, a paid charge-off is still a derogatory mark, and some lenders don’t distinguish between paid and unpaid charge-offs.
Dealing With Inaccurate Charge-Offs
Most companies that report to credit bureaus are careful to send accurate information, but mistakes do happen. If anything on your credit report is inaccurate, you can — and should — dispute it.
The Consumer Financial Protection Bureau recommends contacting the credit bureaus where the incorrect information appears. When you mail a dispute letter, you should include the following key information:
- Your name, address, and phone number
- Your credit report confirmation number (if you have one)
- The exact error you want fixed (including the relevant account number)
- A copy of your credit report with the error highlighted or circled
- A clear request to remove or correct the information
- An explanation of why you’re filing a dispute
- Copies of any documents that back up your claims
It’s best to send a dispute letter through certified mail with a return receipt. That way, you’ll receive proof that it was actually delivered.
What Does a Charge-Off on My Credit Report Mean?
For many people, credit reports are far from intuitive. That means it can be tricky to answer the question “What does a charge-off on my credit report mean?”
However, understanding what a charge-off is — and how to address it – can be a critical step toward resolving this situation in a way that leaves you in the best possible position.
Key Takeaway
A charge-off on your credit report means a lender has given up on collecting your debt directly. However, you still owe the money.
While a charge-off can significantly impact your credit, it doesn’t have to define your financial future. Understanding what a charge-off is, knowing your rights if there’s an error and taking clear steps to rebuild credit can help you move forward.
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