If you’re of the opinion that paying your bills late won’t have an impact on your credit score, think again. Late payment of bills under any circumstances can tarnish your credit history. Initially (during the first 180 days), the longer you go without paying the debt, the more it will affect your credit score. Should the unpaid credit card debt reach a point where the lender thinks it will be irrecoverable, it will be known as a “charge.”

A discharge allows creditors to cancel the debt and claim a tax exemption. Generally, an unpaid amount is recorded as a charge-off when you don’t pay the bill for at least six months. However, the tenure varies from lender to lender.

Why avoid cancellations?

A discharge means that you have been delinquent in paying the debts you owe. Once a debt is discharged, it is no longer considered revolving debt. It becomes an unpaid balance. If possible, it is always advisable to avoid a download. That’s because when your account is revolving, you still have a chance to pay off the debt and get your credit score in good standing.

Even if you pay the amount due in full, a write-off will remain on your credit report for the next seven years. This is because your past payment record is considered an indicator of your future behavior. In the event you settle the charge by paying less than you owe, both transactions will be reflected on your credit report.

Myths about cancellations

A myth that most people may have heard is that charge-offs can be removed from your credit report. It may surprise you to learn that your responsibility to pay the debt doesn’t end when it’s paid off. When your debt has been transferred to a collection agency, the contract you signed to pay the debt will remain in effect until you settle the account. An important point to remember when your debt is discharged is that you may not be able to settle the payment with the original creditor, but rather with the collection company.

The impact on your credit score

Cancellations can greatly damage your credit score. Whether you owe $100 or $1,000, write-offs can pose a huge threat to your future investment plans. A discharge can cause your credit score to plummet. Like some of the other blemishes on your credit report, a discharge can be a major setback if you’re making an effort to improve your credit score.

It is advisable to consult a credit repair company that will help you assess your credit score regularly and detect any flaws or inaccuracies that may be present in the credit report. This company can also advise you on the various steps that will help you improve your credit score.