Credit Report Charge-Off – What Is It and How Do You Avoid It?

We live in a world of ever increasing needs. As consumers, we are always faced with the need to buy certain essential products from time to time. Since we may sometimes not have the much needed money readily, we may have to buy some items on credit. Credit cards were introduced to help us navigate through such problems.

However; some people abused the convenience of credit cards by defaulting on their debts. To curb such defaults, credit bureaus were founded so as to gather all the credit history of a person. This insured the banks and financial intermediaries from extending credit to serial defaulters. A credit report is prepared based on your personal information and credit history. The credit report in turn helps the concerned authorities to prepare a credit score which is used as a tool to decide whether credit can be extended to you.

A score of below 620 indicates that you are a low-end borrower. It is very hard to get credit with such a score. A score of more than 700 on the other hand indicates that you are a high-end borrower and can be relied upon to repay your debts. This means that you can basically borrow any amount that your paycheck can support. A score between 620 and 700 indicates that you will have some difficulty borrowing but not as much as the low-end borrower. One of the essential tools that determine your credit score is the credit report charge-off.

A charge-off on your credit report simply means that you will no longer be able to make a purchase with your account. However; this does not mean that you have been let off the hook. You will no longer be able to use your credit card. The creditors have treated your debt as a bad debt and have written it off. The creditor will also go ahead and report a charge-off on your account status to the relevant credit bureaus.

The creditors usually give you a lapse period of 180 days (6 months) before updating your account status with the credit bureaus as a charge-off.Thereafter; your account will remain in the charge-off status for seven years. A charged-off credit report is bad because in the future, creditors and lenders will see you account as having been charged-off which means that you can’t be trusted with making payments on time.Consequently, your credit score will drop after a charge-off. Payment history plays a big part in the calculation of your credit score. The first charge-off which has gone unpaid will have a huge effect on the credit score. However, as time goes by, your credit score can improve by a big margin if you pay your debts in time.

 

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