How Does A Charge-off Affect Your Credit?

Credit card companies, like all lenders, have strict guidelines for determining who is likely to repay a loan or pay off their credit cards. If you fail to make regular payments on your credit cards and other debts, you may eventually receive notice from the company that (1) they are considering declaring your debt as uncollectible, also known as a charge-off; or (2) they are declaring your debt as uncollectible.

If a credit card company decides to declare a debt as uncollectible, that decision will have far-reaching implications for your financial future. Your credit score will be negatively affected, and you may find it difficult to open new lines of credit or even to secure a job if you are asked about your credit during the application process.

It’s important to remember that a company cannot charge off your debt without first giving you plenty of warning, usually in multiple letters and phone calls reminding you about your payment obligations and telling you when they plan to take further action. If it’s important to you to keep your credit score high, or if you don’t want the hassle and embarrassment of having a charge-off on your record, it’s best to take action as soon as you receive notice from the company that they are considering this option.

You can do several things to avoid having a charge-off appear on your credit report.

First, if you have the means to do so, you can pay off the debt in full. This is the best-case scenario, and it’s essential to act quickly if you want to avoid damage to your credit score.

If you’re unable to pay off the debt in full, you may still be able to work out a payment plan with the company. Make sure you understand what will happen if you fail to make regular payments and don’t agree to any program you can’t reasonably expect to follow successfully.

Finally, it’s crucial to maintain good credit habits moving forward. Paying your bills on time is one of the most important things you can do to improve your credit score, so set up a budget and make timely payments on all of your debts in the future.

By taking these steps, you can avoid the negative consequences of a charge-off and protect your credit score for the future. 

If you need help understanding how credit scores work and how they affect your credit, give The Oasis Firm a call today!