A charge-off in your credit report means that you defaulted on a payment which means that you were unable to pay a creditor or lender. The account is thus considered a loss by the creditor even though you still have the legal obligation of paying the said money. Charge-offs have a devastating effect on one’s credit score, but is it possible to attain a 700-plus score with charge-offs on your credit files?
So to make the long story short the short answer is yes you can indeed have a credit score in the range of 700 with charge-offs on your credit report. However, there are some criteria, which define what kind of credit score can be achieved.
In this topic, I will explain the impact that charge-offs have on your credit score.
Charge-off is recorded when an account is considered uncollectible by the creditor, which is when it does not expect any further payments. It operates with the premise that you have closed the account because you have not been making payments as planned. A charge-off is among the worst account statuses there could be in a company.
Charge-offs affect your credit score in a few key ways:
Payment History – Since charge-offs are an indication that one has been noncompliant with payments, this outright undermines the record of payment history which constitutes 35% of the FICO credit score. This action, especially if it happens after several missed payments resulting in charge can greatly lower your score.
Credit Utilization – Charge-offs affect your debt–to–limit ratio and the amount of bad debts you own that is 30% of your score. After charging off you still legally and technically owe the debt although the collector can’t legally come after you for it.
Credit utilization – This means that if you have more debt, and unpaid charge-offs are higher, credit risk rises, and as a consequence, your scores are also reduced. An important measurement is keeping credit card balances low as it can mitigate negative impacts.
Credit Mix – This is a risk factor whereby lenders prefer to see that a borrower has been using credit responsibly in different forms. Charge-offs negatively affect your mix of credit and any other loans such as mortgages, auto loans, and so on become difficult to access.
These reasons show why charge-offs make it challenging but not impossible to achieve a super-high credit score. A critical distinction – what’s even worse, even when the unpaid debts are charged off, you will find them on your credit reports for as long as 7 years.
It is possible to build credit with charge-offs as long as they are handled in the right way and the mistakes are corrected.
They have observed that the effects of charge-offs on your credit are not as severe in the long run if other credit behaviors are good. It is possible to work around it in the future even if you have had one or two charge-offs.
Here are some tips to offset charge-offs and continue improving your credit score:
Pay Down Balances: Make sure to keep credit card balances at or under 30% of your limit and carry minimal other balances. This lowers your credit utilization ratio for scoring and is the reason why.
Keep Existing Accounts Open: Ensure that open credit cards and loans are used accountably. Balances that do not have any credits remaining in them are advantageous in proving creditworthiness.
Limit New Credit Applications: This is because every new credit application can bring down the ratings for a short period. Do not apply for accounts that are not necessary once your reports are set after half a year from the previous year’s report.
Prevent Further Delinquencies: If there are still some of the open accounts, ensure to pay at least the minimum balance on the due dates. Tardy payments can increase score damage as shown in the following figure.
Consider One-Time Payments: In the long run, it becomes possible to ask lenders and banks to accept a one-time payment to clear charge-offs instead of going for other procedures such as bankruptcy. This can reduce the extent of harm it can cause in the long run or maybe even get it deleted altogether.
Dispute Inaccurate Information: Utilize the provisions of the Fair Credit Reporting Act to contest any inaccurate information concerning account details that are making your reports worse. This can be beneficial to raise one’s scores as credit rebuilds.
What is the Highest Score of Credit?
While being a charge-off, it is realistic to achieve slight score boosts under the very good rubric as time goes on and proper credit handling is applied. Such a population can get back to scores more than 700 even up to 3-5 years from the initial delinquency dates. However, if the charge-off amounts were very large or for mortgages and installment loans, they are used to have a severe impact on scoring models.
In general, here are some broad expectations on how high of a credit score is possible with charge-offs:
1 year or less since charge off: Score very unlikely past the 625 range
1-2 years since charge off: Possible from 700s but can take another couple of years
3-5 years since charge off: Test scores may vary from 0 to 750, More information:
5-7 years since charge off: If the result of the sum of the two dice scores past 700, then it is much more likely.
The older unpaid charge-offs get, the less they affect scores directly, provided the consumer has been managing his or her credit well. Again, they drop off the reports after 7 years, therefore you get a fresh start to continue working on the way to improve to the very good 800+ credit scores zone. But even in the settlements, one can gain at the age of 6-7 years helpful thing.
A credit score of 700 and over is a great score that can provide the applicant with numerous opportunities.
A credit score of 700 or so even if one has had issues with payments and charges remains a good mark during credit reinvention. This is regarded as good credit since many credit providers are willing to provide new credit products for anyone with a 700 FICO.
Having a 700 credit score typically makes you eligible for:
Almost all credit cards possible with features for reward programs
Car loans and average interest rates of the car loans.
Specifically, the prime rate on mortgages under better terms
Personal loans/CD or money market accounts
Most of the time, leasing an apartment is preferable.
Hence, charge-offs do affect 700+ credit files or 700+ FICO scores more than anything, but the determination to rebuild credit will indeed take you back to the required 700 FICO score. But there are some simple rules one should follow: the balances are low, no payment is more than 30 days past due, and negative information does not dominate the credit report and is gradually removed.
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