A charge-off is a term used on credit reports that indicates a significant problem with someone’s credit. The creditor has tried and failed to get the account back on track, and several months have passed when no payments to the account have been made. Here’s how the process works.

What Starts a Charge-Off?

It starts with someone missing a payment on their credit card bill. At that point, the credit report could move that credit card from “Accounts in Good Standing” on the credit report to a negative category.

What Happens if Payments Aren’t Made for Several Months?

The credit report keeps updating the information to show how long the account has been delinquent and the account’s outstanding balance. This is what other creditors will see if they check your credit report to see if they’re willing to extend credit to you. The longer the account is delinquent, the more likely someone will have trouble getting additional credit.

When Does the Charge-Off Occur?

When the account is six months past due, the creditor has the option to charge off the account. That will show up on the credit report. It means the creditor has given up trying to collect and close the account.

What Happens After a Charge-Off?

Creditors often sell this uncollectible debt after charging it off their books. It’s often sold to collection agencies that take the risk of paying little money for it in hopes that they can force the debtor to repay it. Once the debt is sold, the original debt on the credit report shows up as zero, but now the debt is listed under “Collections.

Am I Still Liable for Charge-Off Debt?

Even though it’s been sold from the original lender, the debtor still legally owes the debt. Once it goes to a collection agency, the debtor can only deal with the collectors. The original lender is no longer involved in the debt, and there’s no point in trying to negotiate with them.

What if a Charge-Off Shows Up on My Credit Report Incorrectly?

Credit reports and reporting agencies can make mistakes, often based on incorrect information provided to them by lenders and creditors. Someone with a similar name might find a debt listed on the credit report that isn’t theirs, and that’s true for charge-offs too. The incorrect listing needs to be disputed with the credit reporting agency.

How Long Does a Charge-Off Stay on a Credit Report?

Like foreclosure or bankruptcy, charge-offs last seven years. It should automatically be removed at the end of the seven years, but if it isn’t, contact the credit reporting agency to dispute it.

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If you or someone you know needs help with bankruptcy, foreclosure, or debt collectors, call us at 708-575-1500 to work with one of our experienced attorneys.