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The Negative Impact of Credit Charge-Offs: What You Need to Know

The Negative Impact of Credit Charge-Offs: What You Need to Know

By Kim Gallagher • May 13, 2020

If you’re finding yourself in a difficult financial situation lately, rest assured, you are not alone. Every day, hard-working Americans face unexpected hurdles that impact their finances. Meeting routine expenses such as monthly car payments, credit card and loan payments, mortgage and rent, education and health care costs becomes challenging and even overwhelming.

Credit experts predict that a long-term economic downturn could potentially create a spike in charge-offs, also known as charged-off accounts.1 A “charge-off” is a financial term generally used to describe an account that has become 180 days past due. Because these accounts have become so delinquent, creditors find it unlikely a customer will repay the debt – despite repeated and ongoing attempts to work with the customer on payment options – so they reclassify the debt as a charged-off account for accounting reasons.

The long-lasting effect on your credit score

The fact is, a charge-off is nothing to celebrate, namely because it doesn’t make the problem go away. A charge-off does not free the debtor of having to pay the debt; you are still obligated to pay it.

When a creditor charges off a loan, they are writing off the outstanding debt as uncollectable and reporting it to major credit-reporting agencies – potentially affecting your credit score. For customers, this adds a layer of frustration. After all, a charged-off account could stay on your personal credit report for up to seven years and can make obtaining future credit more difficult.

What many people don’t realize, too, is that even after an account charges off, creditors can continue to pursue repayment, because you are still responsible for paying back your debt. After charge-off, accounts are typically either retained in-house for collection, placed with third-party collection agencies, placed for litigation or sold to a debt buyer.

Act to protect your credit

You have several options to help avoid the possibility of a credit charge-off. The sooner you act, the healthier the financial outcome might be. Consider taking the following actions:

  • Call your lender or debt collector to discuss how you can pay a lump sum to get your account current and move your debt out of collections.

  • If you can’t pay off your balance, even at a reduced sum, ask for a debt repayment plan.

  • Look at other financial options, such as debt consolidation, that may help you pay other debts, reduce monthly payments and free up your cash.

  • If you're considering credit counseling agencies, review this advice from the Federal Trade Commission.

Make the right call

Most importantly, don't be afraid to pick up the phone. Remember, creditors would much rather find a solution that works for both sides, and they are having these conversations with people every single day. Lenders like OneMain carefully examine the whole situation to determine their course of action.

Once you work out a plan, you will breathe a sigh of relief. The collection letters and phone calls will stop, and you can move forward with less financial stress and be able to concentrate on taking other positive actions to protect your family and finances.


1. Harry Terris, Ronamil Portes. “Surging unemployment threatens US banks concentrated in consumer loans”. S&P Global Market Intelligence. (accessed May 6, 2020).


The information in this article is provided for general education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. It is not intended to be and does not constitute financial, legal or any other advice specific to you the user or anyone else. The companies and individuals (other than OneMain Financial’s sponsored partners) referred to in this message are not sponsors of, do not endorse, and are not otherwise affiliated with OneMain Financial.