Identification

A charge-off on a credit report means that the lender believes that it can no longer collect the debt because the borrower has failed to make a payment for a long time, usually after 180 days, DebtHelp.com reports.

Misconceptions

A charge-off does not mean that you are free from any obligation to pay off the debt, reports Steve Bucci of BankRate.com. Creditors write it down for tax purposes, but usually still try to collect on it.

Fun Fact

Bucci reports that having a charge-off is the most common reason for a creditor to deny you a loan.

Effects

Sometimes the credit agency hires a third party to collect the debt, according to DebtHelp.com. When this happens, the third party will constantly contact you (email, calls and even in-person demands) for repayment on your loan until it is no longer legally allowed to attempt a collection.

Prevention/Solution

Since charge-offs appear on a credit report for seven years, you should consider trying to settle with the lender or restructure your payments before it considers the account delinquent, according to Bucci. When you do finally pay it off, make sure your credit report reflects it.

Source:

DebtHelp.com: What is a Charge Off?: Prevention and Recovery

Bankrate.com: Getting rid of an old charge-off; Bucci, Steve