Your credit report is a lifeline between your money and what it can do for you. If you have a poor FICO score, you won’t be able to purchase a house, car or anything else that might require good faith and payments. Time and chance happens to all, and it is common to fall on hard times; especially in this economy. Some of these hard times may produce late payments and ultimately a write-off.
What Is This Mark On My Credit Report?
A charge-off occurs when a company deems the debt as uncollectible, and they write off the loss on their end. Now, what usually happens with that debt is it is purchased by another collection agency who now will attempt to collect the debt. It doesn’t have to be transferred out for the company to still try to collect. For instance, if you had a car loan with ABC Company and they repossessed the car, the deficiency balance of $4,640 is still due. They can pass that debt onto another company to deal with. If they want to be rid of the balance and it is clogging up their receivables, they will simply write it off. They can also choose to go to court or arbitration to try to recover the money.
What Can I Do?
You will typically see write-offs occur at the end of the year. Though they can occur at any time, many companies want to get as much written off as they can. As the consumer, if you have this mark on your credit report, you may wonder how you can even start to rebuild. It’s not an easy task, but it can be done. You have a few options in how to handle this credit issue. First, you can do nothing. If you do nothing, the account will fall off the credit report in 7-10 years. It will negatively affect the credit report, but as long as you keep up with other bills the good will outshine the bad.
Making the Debt Right
Secondly, you can seek for bankruptcy protection to keep these collection activities from intensifying. Some collection agents are more serious than others. If the debt is above $2,000 it might be advisable to seek help. Third, you can try to pay the debt off, even if in payments. This will show future lenders that you made the charge-off right. Once paid in full, the creditor is required to change the status to “paid in full.” While it may not do anything big for the FICO score, it certainly will make you look more responsible down the road.
Rebuilding
Sure, it is a black mark on your report, but it isn’t the end of the world. Many people have dealt with numerous credit problems and managed to bring themselves back to a decent score. By using hard work and calculated credit moves, it can be done. Maintaining a good credit file is difficult and there are always going to be bumps in the road. The important thing is to take precautions and try to work with the creditors. Even if it is just $20 a month, this can keep your account from going further into collections and eventually being written off as bad debt. A charge off on your credit report is not the end of the world; it can be fixed.