With credit card comes great responsibility. Being trusted by a creditor is a big deal which you should be careful in dealing with. Basically, as long as you make payments on time and you know your limits, you won’t have any problem.
Unfortunately, many credit card holders are too laid back, carefree or even care less to the point where they take things for granted. They start delaying payments or they start not paying at all; and sometimes, it’s not just for a month or two, it may even reach more than half of a year. By this time, they will probably receive a “charge-off” on their credit report. And if you do not understand what this implies, it may be best for you to take some time to read what a charge-off is.
What is a charge-off?
A common misconception of the term “charge-off” is the idea that when creditors have charged-off your card, your debt has been cancelled. Mind you, this is a very wrong way of putting it. A charge-off actually refers to the situation where your creditor has declared your debt as a loss for their company. That is declaring that your debts are unlikely to be collected.
One of the worst marks you may receive on your credit report is a charge-off. But why is that so? Well, this is mainly because a charge-off dramatically affects your credit score and to top it off, this record will reflect on your credit report for seven years.
How does a charge-off happen?
You ought to know that in your credit agreement, you are obliged to make minimum payments on specific due dates for each month. In order for you to avoid any late payment notice to reflect on your credit report, you can still make the payment between the due date and 29 days past it. However, for situations wherein you fail to make the payment until the next due date, a late payment notice will be filed on your report. If this goes on and on until you reach 180 days late, which also six months, your account will receive a charge-off mark.
In other situations, your account can also be charged-off if you keep sending payments that are less than the minimum due. To avoid being charged-off, you must, therefore, pay the full minimum.
Why and how should I clear a charge-off?
Whenever a creditor declares your debt as a loss for their company, they won’t let you get away for free. They will continue to demand you to pay your debt. You should do your best to clear your debt since the past due balance is actually legally forceable; in other words, the creditor can sue you for it and you might end up needing to get a lawyer to defend you. Aside from this, a charge-off is a disaster for your credit report and it may negatively affect all other future loans and deals you wish to make.
As previously mentioned, the charge-off will stay on your credit report for seven long years. Even a full-payment of the charge-off won’t help remove what was on your credit report; it will only reflect the terms “charge-off paid”. Seemingly, you have no other choice but to wait for the seven years to pass.
Luckily, there is a way to remove the charge-off sooner and this is by sincerely negotiating with your creditor. Although quite challenging, some creditors will have it your way as long as you make sure the right people will handle your case.