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A charge-off is one of the most damaging items on your credit report, and it's important to know how long a creditor can report a charge off before it falls off your report. How long do you have to wait before you can consider it "safe" and the creditor's negative mark will no longer affect your report? And if you do pay off an old charge off, will it help or hinder your credit report?
A charge off is simply an accounting term for when a creditor decides a debt is no longer collectible, and for banks it is considered a business cost. The creditor wants to get the bad debt off their income statement for tax purposes. That's it. Nothing more. You still owe the debt.
A potential lender will review your report for negative items, and charge-offs are one of the worst you can have, as it shows an abandonment of debt. You'll want to avoid or minimize these as much as possible.
Generally, a charge off will drop off your credit report at the 7 year mark, but this is from the time the creditor first wrote off your account, which is about 6 months AFTER the last payment was made. So let's say you stop paying on your credit card in July. The creditor would report your account as a charge off to the credit bureaus in January, and seven years after THAT, the time limit would be reached and the item will disappear from your report.
Can the "clock" be reset? There has been some confusion on this issue, with some saying that ANY new activity on your report, such as a partial payment on an old charge off, will reset the clock at that point for another 7 years. Not true. Thanks to the Fair Credit Reporting Act, negative items are required to be erased from your report 7 years after the date of first deliquency.
Now, should you worry about paying off an old charge off?
The answer is complicated. If you do pay it off, in full or partial, your credit report will show "charge off paid in full" or "partial" as a new item. And that new item will stay on your report for, you guessed it, 7 years. However, a charge off can be so bad that if it's relatively new, you may want to negotiate with the collections agency (or creditor, if they haven't turned it over yet) and offer a payment in exchange for showing the charge off as paid off. GET EVERYTHING IN WRITING! Also, many mortgage lenders may require you to pay off ALL old debt before approving your for a mortgage. For more on this, see my own articles here. Also, you may want to try having a LEGIT attorney do some of the letter-writing for you. Read about Lexington Law here. |
