Q: After I paid a debt to my bank in full, I saw on my credit report that the bank reported it was charged off. What does this mean and how can I get it fixed?
A: It can be jarring to see an account marked as “charged off” when you thought it was paid in full. And if this happens to you, it’s a good idea to dig a little deeper into what’s happening.
“If a bank is indicating an account is charged off, then I would inquire from the bank as to the reason for the charge off,” Troy Doucet, a consumer attorney in Dublin, Ohio, said in an email.
“How much do they contend is still owed? There is likely some amount of money.”
Doucet explained that “a bank would not charge off a debt that has been paid in full because there would be nothing to charge off.” He said that banks charging off an account is their way of “indicating that they believed some amount of money was still owed on it.”
“If a consumer thinks they paid off the entire amount, then the amount of the charge off could be a small amount of residual interest or a later charge,” Doucet added. “Even $1 can be charged off.”
Getting a Debt Charged Off
“Charging off a debt usually means the creditor does not expect to recover payment from the consumer on the balance of a debt owed, and indicates the amount written off as a loss on their income statement,” Doucet said. “Some banking institutions must take this step to comply with regulatory requirements, so their balance sheet does not appear ‘inflated’ with accounts it likely will never be able to collect.”
However, if your report shows your debt marked as being charged off, that doesn’t mean you are getting off scot-free.
“Charging off a debt does not affect the validity of the debt as between the creditor and debtor,” Doucet said. “The debtor is still obligated to pay on the debt.”
Still Certain it’s an Error?
“If there was absolutely no amount of money owed upon a ‘charge off’ designation, then someone is likely looking at a credit report with an improper designation in it,” Doucet said. “They should write to the credit bureau [reporting] the error and dispute that designation as a mistake.”
It’s a good idea to review your reports from the three major credit bureaus — Experian, Equifax and TransUnion — as they can each report different information. (You can get a free copy from each by visiting AnnualCreditReport.com.) Look over these reports for any errors and then file a dispute claim for anything you feel is a mistake. You can read this guide for more information on how to dispute an error on your credit report.
What You Can Do if it Isn’t a Mistake
A charge off is seen as a negative mark on your credit report and can damage your ability to get approved for new lines of credit. But all hope is not lost.
It’s a good idea to pay off the remaining balance on your charged-off debt. Doing so will change the status of the charge off to being noted as a “paid charge off.” This shows potential creditors that you’ve put in the work to repay your debt.
Beyond that, you can add other positive information to your credit history to help improve your profile, like maintaining a good payment history and keeping your credit utilization in a good place — experts recommend using less than 30% (ideally less than 10%) of your total credit limit. You can see how these behaviors affect your credit profile by taking a look at your free credit report summary, updated every 14 days, on Credit.com.
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