[I]f you’ve looked at your credit report recently, you may have noticed that an account says Charged Off. You may not be sure what that means for you and for your credit score. It’s an important term you should understand to help you improve your credit score.
A creditor will charge off your account if you fail to make payments for a minimum time. Sometimes, it may be as little as six months. In other cases, it may be a year or some other period. The idea is that the creditor assumes you have no intention of paying your debt, so they have charged it off their financial records.
While the account may be removed from their records, it does not mean you don’t have to pay it. The creditor can pursue payment by selling your account or hiring a collection agency.
Once the account has been sold, it can appear twice on your credit report. It will show up first as the charged-off account. It can show up a second time under the collection agency. Having two negative items for the same account can do even further damage to your credit score. The collection agency may also show missed payments each month for the account when you don’t pay them.
The best thing to do if you have an account that has been charged-off is to pay the collection agency. If you don’t have the full amount, you can begin making payments. You can even try to negotiate a reduced amount to get the account settled quicker. Once you have completed your required payments, it will be marked as paid. The account will still show on your credit report for up to seven years, but it won’t continue adding negative information.
If you don’t pay, an account can be sold from one collection agency to the next, which means it can continue to hurt you for some time. However, with each new account, the timeline still goes back to the last time you made a payment and doesn’t start all over again.
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