The Impact of Charge-Offs on Your Credit Score and How to Handle Them

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Understanding Charge-Offs and Their Impact on Your Credit

At O1ne Mortgage, we understand that managing your credit can be challenging. If you have questions about charge-offs and how they affect your credit score, you’re in the right place. For personalized mortgage services, call us at 213-732-3074.

What Is a Charge-Off?

A charge-off is a negative entry on your credit report indicating that a creditor has written off a debt as a loss because they don’t believe you will repay it. Despite this, you are still responsible for paying back the debt.

Do Charge-Offs Affect Your Credit Score?

Yes, charge-offs can significantly impact your credit score. The missed payments leading up to the charge-off are particularly damaging. Your payment history is the most critical factor in your credit score, accounting for 35% of your FICO® Score. Missed payments can hurt your credit score for up to seven years.

Charge-Offs vs. Collections

When a creditor gives up on collecting a debt, they may sell it to a collection agency. This results in two entries on your credit report: the original charge-off and a new collection account. Both can negatively impact your credit score.

Should You Pay Charged-Off Accounts?

Yes, you are still legally responsible for the debt. Paying off a charged-off account can change its status to “paid,” which some lenders view more favorably than unpaid charge-offs. However, it will still be considered a derogatory entry on your credit report.

Can You Remove a Charge-Off From Your Credit Report?

If the charge-off is accurate, it will remain on your credit report for seven years. If you believe it is incorrect, you can dispute it with the credit bureaus. If found erroneous, it may be corrected or removed.

Rebuild Your Credit After a Charge-Off

Rebuilding your credit is essential for achieving financial goals, such as qualifying for a mortgage. Here are some tips:

• Monitor your credit reports regularly.
• Pay your bills on time.
• Lower your debt balances.
• Consider getting a secured credit card.
• Seek help from a credit counselor if needed.

Remember, rebuilding your credit takes time and patience. For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey.

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