How An Auto Loan Charge Off Affects Your Credit

A loan charge off can stay on your credit report for a long time, making it a potential time bomb if you plan on applying for credit for major purchases. While the impact of a charge off decreases over time, many lenders and creditors do not look favorably upon borrowers with numerous charge offs on their credit report.

A charge off is a notation on a credit report that states that a credit loan was incurred and payments failed to be made to resolve the financial obligation. Having a charge off placed on your credit report does not usually mean that you are relieved of the credit obligation. It simply means that the credit has not been able to collect on the loan. A charge off does not prevent the lender from continuing to attempt to collect on the financial obligation and very often lenders will sell the charge off to a collection company which will attempt to not only collect the loan amount, but will also tack on their own charges on top of the credit balance.

A charge off will stay on a credit report for up to seven years. In some cases, a creditor will resubmit a charge off every time they sell the obligation to a credit collection company. This means that you may discover an old financial obligation noted several times on your credit report as if it were a new obligation that has not been paid. This can extend the impact of a charge off well beyond the initial seven years.

In many cases, a charge off will have less and less impact over time - if it is not repeatedly reported as a new credit charge that has not been paid. As a result, potential lenders often look at the most recent years of credit payments as a way to gauge the credit worthiness of a potential credit applicant. However, as stated earlier, many creditors attempt to keep charge offs at the top of recent unpaid credit obligations by repeatedly reporting charge offs. This can result in new creditors being reluctant to offer credit to anyone who has multiple or recent charge offs on their credit report.

It is almost always in the best interests of a person with a charge off on their credit report to approach the lender and attempt to resolve the problem. This may mean offering to make multiple payments or one financial payment that resolves the entire credit obligation. When contacting the creditor, have all of your information available about the credit obligation and ask to speak with someone who can approve financial arrangements. Once you have reached a compromise, ask that you be sent a written agreement on company letterhead, so you have proof of a financial agreement. Make sure that you meet the agreement and then submit the information, along with proof of payment, to the credit reporting agency to have the charge off removed from your credit report.

Loan charge offs have a potentially huge impact on credit reporting. Charge offs can remain on a credit report for seven years or longer and may even be reported repeatedly as a new unpaid financial obligation. If you decide to negotiate with a credit to resolve a charge off, make sure you get any agreements in writing and retain proof of payment so you can have the negative credit statement removed from your credit report.