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How Long Can Charge-Offs Hurt My Credit?

Gerri Detweiler

Most of us know that a late payment hurts our credit scores, and that paying on time is important to maintain good credit scores. But what happens when a debt is charged off and it keeps reporting negatively? Will it keep hurting your credit month in and month out? Our reader asks:

I have an account (that) went to charge-off status in Feb 2011. At the time I had six late payments on that account, now I have 56 late payments of 90+ days. I thought that once it went into charge-off they could not report monthly anymore since the account is technically closed. I am trying to dispute it but am having so much difficulty. Please help. Are they able to report this as they are, 90+ days late every month continuously, or is this incorrect?

In fact, a number of readers have asked about what they believe is ongoing damage to their credit reports from charge-offs that may have happened years ago. Should they be concerned?

First, for those who aren't sure what a charge-off means, it basically indicates a creditor hasn't been able to collect a debt. Debts are often "charged off" (or written off as bad debts) when payments haven't been received for four to six months, depending on the type of loan. Lenders can still try to collect these balances, at least until the statute of limitations expires.

Will paying off the debt change things? While the balance may be updated, the fact that the debt was seriously delinquent remains on your reports for seven years. "Once you have resolved the debt (the charge-off) doesn't go away," warns attorney and Credit.com contributor Leslie Tayne, the author of Life & Debt. "The history will show you were delinquent." Charge-offs may be reported for up to seven years after the date the account was charged off.

As the fact that status is reported as "late" each month — is that a problem?

"A charge-off is final status," says Rod Griffin, director of public education at Experian. "It's no longer an active account." He says that consumers will also often see a notation that indicates who the debt was transferred or sold to. (These accounts usually end up as collection accounts — which can mean another hit to your credit scores.) But the fact that it is reported as a charge-off each month isn't necessarily wrong, since that is still the current status.

Barry Paperno, a credit scoring expert who previously worked at FICO and blogs at SpeakingofCredit.com, also said that what typically happens is that the credit score will "read" that charge-off date and treat the information accordingly. Negative information tends to carry less weight over time.

What about the fact that our reader's credit report lists so many late payments? Paperno says it's impossible to say exactly what's going on without seeing the report, but he has a theory:

As long as the account is being accurately reported as having been charged off back in February 2011, the creditor is allowed to continue reporting it each month with that status and date. I have a feeling the consumer is seeing the payment pattern on the trade line that automatically tallies up another late payment each month and will continue to do so simply because it's on the credit report and it's derogatory. If so, this is more a function of the credit report formatting that has nothing to do with how the account is impacting the score — again, as long as the charge-off is dated February of 2011. And while it may not seem so, it could be argued that the account has in fact been late for 56 months.

None of this is to say that mistakes don't happen. Credit reports can contain errors. And that's why it's smart for consumers to at least check their credit reports annually and review their credit scores on a regular basis. (You can get a free credit report summary once a month from Credit.com.) Also pay close attention to the dates on your reports to make sure they are accurate. They determine how long information can be reported. Finally, keep in mind that even with negative information such as late payments and charge-offs on your credit reports, you can begin rebuilding credit today. (This guide offers strategies to improve your credit scores.) Charge-offs — and bad credit — don't have to last forever.

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