Unpaid Balance Reported As a Loss By Credit Grantor (2022)

This statement will appear on consumer credit reports when a creditor has charged off a debt because the borrower did not fulfill their obligation to pay.

After 180 days of delinquency, a debt is categorized as in default. This means the creditor has determined the loan to be unrecoverable and the remaining balance will be recorded as a financial loss.  

When a loan is in default, the borrower is immediately notified that they are required to pay the entire balance in full by a specific date or the loan will be charged off and assigned to a collection agency.

If the borrower is unable or unwilling to pay by the date indicated on the notice of default, the creditor proceeds with the charge off.

What happens when a debt is charged off?

After the debt is charged off, the debt is assigned to a collection agency.

The original account will remain on the consumer credit report for 6 years 9 months from the date of last activity.

The payment field will state CO (charge-off) every month for that entire length of time.

From the point of view of the creditor, the debt is reassigned from profitable assets to business loss on the quarterly accounting ledger.

The debt is reported as “charged off” to all three credit bureaus, Transunion, Equifax, Experian.

They are considered extremely negative and substantially decrease consumer credit scores.

The charged off debt will include this comment “unpaid balance reported as a loss by credit grantor” in the description field, when added to the consumer’s account.

This statement serves as further clarification to creditors that this borrower is high risk and unlikely to fulfill future payment obligations.

How soon does a charge off appear on the credit report?

The original creditor reports the debt as charged off in the next monthly reporting cycle, after its status has been updated internally.

Usually within a short time thereafter, a collection account will also appear on the consumer credit report for roughly the same amount as the charged off debt.

The addition of this collection account lowers the consumer credit score even further. 

How long will the charge off and collection accounts stay on my credit report?

Both the charged off loan account and the collection account will stay on the consumer credit report for 6 years 9 months from the date of last activity.

For nearly seven years, the original creditor will continue to report the loan monthly status as “charge off”.

But aren’t both accounts the same debt?

Yes, the consumer is getting penalized twice for one bad debt.

The charged off account is now closed with a zero balance, but it continues to report the charge off status monthly as if it is an active account.

The collection account is open and also reporting monthly.

Both accounts will stay on the credit report 6 years and 9 months from the date of last activity unless one or both can be removed before that time.

Occasionally the original creditor charges off the loan, but doesn’t assign the loan to collections.

In this circumstance, the charge off continues to report but no matching collection is reported by a collection agency.

Is there a way to remove a charge off from my credit report?

After the charged off account has been assigned to collections, there is nothing remaining with the original creditor to negotiate.

So it is unlikely the charged off account will be removed from the credit report before the 6 year 9 month expiry date.

However, it is very common to negotiate a settlement with a collection agency.

Often they will accept less than the original balance and agree to remove the collection account from the three credit bureaus when final payment is received.

Again, this does not remove the original account charge off, as these are two separate accounts.

How can I remove a charge off from my credit report?

It is possible to negotiate a settlement with the collection agency.

This is an agreement that the collection agency will accept payment for less than the total debt amount, and in exchange, the collection agency will report the account as paid in full with a zero balance.

As part of this agreement, the collection agency may agree to “pay to delete”.

This means when the payment agreement is fulfilled the collection will be deleted from all three credit bureaus.

It is essential to get any agreement in writing prior to making the first payment.

Another option is to wait 6 years and 9 months beyond the date of last account activity.

At that time, both the charge-off and the collection will “fall off” the consumer credit reports with all three bureaus.

If this option is chosen, it is extremely important to maintain zero contact with the collection agency for nearly 7 years. Any contact, such as a simple conversation, will restart the waiting time.

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