How Long Before Unpaid Dept Becomes a Charge-off?

It's a relief to pay off your bills.
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If your goal is to beef up your credit score and make sure you always have good access to credit in the future, keep your bills current and certainly don't let things slide until the lender gets to the point of charging off your debt. It typically takes six months or 180 days of not paying your debt for the lender to charge it off. Some lenders charge off a debt after four months. You should do everything you can to prevent this from occurring because it can really whack your credit rating.

About Charge Offs

The term "charge-off" refers to the creditor being able to report a loss for tax purposes. That doesn’t mean you don’t owe the bill anymore. The lender might still try to come after you. In other cases, the lender has turned the account over to a collection agency. The collection agency will surely try to get you to pay. It will probably seek the full amount of what you owe, but it also might accept a deal. If you pay the full amount, your credit report will reflect this and the account will be listed as a “paid charge-off.” If the collection agency settles your account with a partial payment from you, your credit report will list it as a “settled charge-off.”

Your Credit Score

By not paying bills and by having charge-offs listed on your credit report, you are tanking your credit score. No lender, except the subprime ones that charge a fortune in interest rates, will lend you any money until the charge-off is gone from your credit report. This takes seven years plus the days you were late -- if you were 180 days late before the debt was charged off, for example, the charge-off remains for seven years plus 180 days. This is true whether you pay back the charged off account in the interim or not.

Develop Good Habits

Although charge-offs remain with you for seven years, recent activity trumps old activity. In other words, your credit report looks better to lenders when you continue to pay your new bills on time and when you have credit available to you that you choose not to use. The more time that goes by with a good credit history, the better your chances of getting a loan. Your last two years of credit history are weighted the most heavily when determining your credit score.

What Lenders Think

Some lenders will do business with you if you have a paid or settled charge-off. The same lenders would probably turn you down flat if you have an outstanding charge-off. You typically cannot get a mortgage, for example, with an outstanding charge-off. You might not be successful in signing a rental agreement, either. In addition, some employers look at your credit report when you apply for a job. Paid or settled charge-offs do look bad; unpaid charge-offs are worse. You could take yourself out of the running for a job by walking away from your debts.

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