Charge Offs vs Collection

Be Smart With Your MoneyIf you are behind on bills, you might be getting notices that you are facing “Charge Off.” Do you know the difference between Charge Offs and a Collection?

“Charge Off” means that the institution that loaned you money is virtually “saying Uncle” and giving up on you ever paying the money back. They take it as a tax write off (loss) and move on.  ”Cost of doing business…”  Does that mean you’re off the hook?  Nope.

Many people mistakenly think when a debt has been charged-off that it’s been cancelled by the creditor. This is not true.  You are still responsible for paying off the debt.  However, you will not be able to use your credit card to make purchases, because when a company “charges off” the debt you owe them – they are FOR SURE going to cancel that card!

An account is usually charged off after 180 days, or six months, of less-than-minimum payments. The charge-off will remain on your credit report for seven years from the date it was charged-off. If you pay the debt, it will be updated with a status of “Charged-Off Paid” or “Charged-Off Settled.”  Either is better than a simple “charge-off” status, but are still undesirable.

Even though the creditor has acknowledged your debt as a loss in its financial records, you don’t get away free. Your creditor will add a negative entry (a charge-off) to your credit report and continue to attempt to collect on the debt.

Normally, the folks who loaned you money (creditor) will then turn the debt over to a Collection Agency… they will file a COLLECTION on your credit report. This means you will have a Charge-Off AND a Collection hurting your credit score for the same debt!

But WAIT… it can get WORSE!  If you don’t respond to the Collection Agency, they can “sell” your collection to another agency who will try to collect it… and it will reflect as a NEW Collection!

The only way to remove a charge-off, or collection from your credit report is to wait the seven-year period (plus 180 days from the time it was reported to the Agency – so really 7.5 years) or negotiate with the creditor to have it removed after you pay the account in full.

If you are considering a mortgage loan to  purchase or refinance, please contact Steve and Eleanor Thorne, Mortgage Bankers in Cary , Inc Raleigh, NC 919-649-5058

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  1. [...] score is really a  report of all of your former credit behavior. Bad credit marks like tax liens, charge off, collection accounts, IRS unpaid bills will show for 7 years from the day they were first reported. Bankruptcies stay on [...]

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