How to Avoid a Charge-Off
If you have consistently missed credit card or loan repayments for six months, your account will be charged-off. A charged-off account seriously affects your credit score and will signal to other lenders that you are a high loan risk. Here we look at the effect of a charged-off account and most importantly, how to avoid being charged-off. More....
Charged-off Consequences
Firstly, your account will be frozen preventing you from making any purchases. The lender will then make their loss official by notifying credit bureaus of your charged-off status. Just because the lender considers the debt a loss, does not mean you are no longer accountable for the debt. Quite the opposite, you will still be liable for the entire debt and any fees plus interest incurred.
Credit bureaus will keep your charged-off status on file seven years from the date your account first went into default. Consequently, your credit score will drop significantly and other lenders will know you defaulted seriously enough to have your account charged-off. However, it is not all bad news, your credit score can improve over time and will be considerably improved if your charge-off is paid quickly.
How to Avoid a Charge-Off
Avoiding a charge-off is easy if you simply make the minimum payment every month on credit cards or loans. A minimum payment is a percentage of your borrowing plus interest and is determined by the lender. This is the least amount you should be aiming to repay each month but if you want to get out of debt quicker you should aim to pay more on a consistent basis.
Each month you are late on a payment, you move that bit closer to have having your account charged-off.
Last but by no means least is dealing with delinquent accounts. Any accounts that are a few months behind should be made a priority. Contact your lender and inform them of your intention to bring your account up to date. There may be some additional fees to pay but these are preferable to the consequences of your account being charged-off.
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