What Do Charge Offs Have to do With Credit Repair?

In accounting, a charge off is a term used by creditors when they decide to write off a debt owed to them. They will make this decision after the debt has been in delinquency for some time and they no longer feel that they will be able to collect the debt. The creditors take this loss because they can use it as a credit against their income taxes. Having a debt charged off doesn't mean that the debt is forgiven or forgotten. You still owe the money and usually the charged off debt is sold to a credit collection agency or a lawyer to continue trying to collect the debt.

In most cases the company will stop charging interest once the debt is charged off, though some will continue charging interest. If the company decides to continue charging interest they must report that as income to the IRS and most companies would rather just put the debt behind them rather than being taxed on income they feel they have very little chance of ever collecting.

Having a charge off on your credit report will typically result in your being denied any additional credit by other lenders. And it can even affect the rates being charged to you on your other outstanding debts, even from lenders that weren't affected by the charge off.

Once you find that you're late on a payment you should always make an effort to contact the lender and let them know you are having financial problems. Explain that you are planning on paying the debt in as timely a manner as possible and see if the lender will work with you in some way to help. Many of them will allow you to continue to make smaller payments to avoid having the debt go into charge off. By ignoring the problem it won't just go away. Letting a debt get to charge off status is one of the worst things you can do in terms of harming your credit score.

If you've already gotten charge offs on your credit report don't worry, it's still possible to have them removed. Contact the original creditor and ask to work with them to set up a payment plan. Request that the charge off be removed from your credit report once the debt is paid in full. It never hurts to try and work this out with the creditor and the worst they can do at this point is to deny you which leaves you no worse off than before. It is also possible to dispute the charge off with the credit reporting agencies.

If you're going to dispute the charge off then it's much easier to have it removed if the debt is already paid off. When you file the dispute, the credit agency has 30 days to verify the status of the account with the creditor. If the account has already been paid off in many cases the creditor will ignore the verification request and the charge off will be removed. Honestly, the only reason they report the charge offs in the first place is to damage your credit rating in the hopes that you'll then want to pay the debt. If you do still owe money on the debt it's highly unlikely that the creditor will ignore the charge off dispute, in which case it will remain on your credit report.