So you're received notice that a bank or creditor has "written off" an old debt and you think it's all over. Well, not so fast, my friend. Even though it appears as if the bank has given up on your debt, it can still affect your credit in a big way by showing up on your credit report, which can affect things like getting a new car loan or a mortgage in the future.
A write-off, more commonly known as a charge-off, occurs when a creditor closes an account because of non-payment. That doesn't mean the debt vanishes completely, taken by the good debt fairies and whisked away to debt heaven. Rather, it means that the bank considers it a total loss for accounting purposes. However, the bank may still pursue you for payment of the debt or sell the debt to a collection agency that will attempt to collect the debt.
Charge-offs and Credit Reporting
A charge-off will show on your credit report as just that, a charge-off. There’s nothing else, no special wording or fancy lawyer-speak. The account simply shows as a charge-off. Sadly, potential creditors will see that and more often than not will think "'unpaid bill." Even worse, a charge-off is more detrimental to your credit than a delinquency as it shows that no payments were made on the debt in such a long time that the bank was left with no other option than to write it off.
Will it Ever Go Away?
If you have a charge-off on your credit report, it can affect how you look to potential creditors and, what's worse, will lower your credit score. You may wish that the evil debt could just be eternally banished from your credit kingdom. However, a charge-off will remain on your credit report for seven years from the date you were first delinquent. What's more, if the debt is legit, there is nothing you can do to change that.
What Can You Do?
The good news is that even with a legitimate charge-off you have nowhere else to go but up, providing you keep your nose above water with your other credit obligations. You can wait for seven years for the charge-off to fall off your report, but in the meantime it will seriously affect your credit. The best thing to do is to call the bank or collection agency and negotiate a debt settlement, where you agree to pay off a set amount of the debt and the debt will be seen as paid in full. This doesn’t completely negate the charge-off from your record. Rather, it will still show on your credit report as a charge-off, but one that has since been paid, and creditors will take into account that you satisfied your debt obligations, which will look better on your report.