What is a Charge Off? | Charge Off Meaning

If you’re far behind on your debt payments, you may find that your debt has been charged off. A charge off can cause your credit score to take a hit and hinder your ability to qualify for credit cards and loans in the future. Let’s dive deeper into what charge offs are and how they might affect you.

What is a charge off?

A charge off occurs when a lender tries to settle unpaid debt with a borrower but is unable to do so. Put simply, it’s a last resort for the lender because they have given up and accept the fact that the borrower either can’t or won’t make any future payments towards their debt. If you receive a charge off, you should know that even though a lender has written off your debt, you’re still responsible for paying it back.

What does a charge off mean on your credit report?

Charge offs are usually reported to the credit bureaus. Unfortunately, a charge off reflects poorly on your past payment history. Since payment history is 35% of your FICO score, it can cause your credit score to take a major hit.

If you decide to pay the charged off account, the negative mark won’t drop off your credit history. But it will appear as a “paid charge off,” which might help your credit a bit.

Can I remove a charge off from my credit report?

Depending on your situation, you may be able to negotiate with your lender to remove the charge off from your credit report. Negotiating is worth a shot, as the worst that can happen is your lender will say no. Just realize that if you’re unable to successfully negotiate a charge off, you’ll have to wait seven years for it to fall off your report automatically.

How to pay a charge off

Follow these steps to pay a charge off:

1. Figure out who owns the debt

Before you pay off a charge off, find out who owns it. It may be the original creditor or a third-party agency.

2. Figure out how much you owe

Next, make sure you understand exactly how much debt you owe. This can help you decide how to settle the charge off.

3. Settle the debt

If you have a small balance, you may have to repay it in full. But if it’s large, you might be able to offer 25% upfront and pay back the rest via monthly installments.

How to dispute a false charge off

If you find that your charge off is an error, you can dispute it with the appropriate credit bureau. All three bureaus, Equifax, Experian, and Transunion, allow you to file disputes online, by phone, or via mail. Once you send your dispute, the bureau will investigate your claim and correct or remove the charge off if it’s inaccurate.

How to improve your credit score after a charge off

Fortunately, you can improve your credit score after a charge off. Follow these tips to do so:

Make consistent on-time payments

Be sure to pay all your bills on time, every time. These include your mortgage, car loan, student loans, personal loans, and credit cards. Remember that even one missed payment can take a toll on your credit.

Maintain a low credit utilization ratio

Your credit utilization ratio compares the amount of credit you’re currently using vs. the amount of credit available to you. If possible, keep your credit utilization under 30%. To lower it, pay down your balances early, reduce your spending, and increase your credit limit.

Keep old accounts open

An older average credit age can help your credit score. That’s why you should keep old credit accounts open, even if you don’t use them. If you close them, you may lower your available credit, increase your credit utilization ratio, and in turn, hurt your credit.

Limit the number of new accounts you apply for

When you apply for new credit accounts, many lenders will perform a hard inquiry. While the occasional hard inquiry is no big deal, too many of them in a short time period can damage your credit score. To improve your credit score, avoid applying for multiple credit accounts at once.

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