What Does a Car Loan Charge-Off Do to Your Credit Score?

Mar 28, 2024

When it comes to managing your finances, understanding the impact of a car loan charge-off on your credit score is crucial. A car loan charge-off can significantly affect your ability to secure future loans, influence your interest rates, and alter your financial stability. This article will explore the implications of a charge-off and provide guidance on how to mitigate its impact. 

Understanding Car Loan Charge-Offs

A car loan charge-off occurs when the lender believes they will be unable to collect the loan. A car loan is typically regarded as an asset since the lender is expecting repayment of their investment. However, the lender transfers the loan from the asset category to the liability category in the event of a charge-off. This is done for tax purposes only; it does not mean that the debt is written off. However, the borrower still owes the lender the money. Car loan charge off typically occurs after the borrower misses payments for a certain period, which is usually between 90 and 180 days depending on the policies of the lender. 

What Does a Car Loan Charge-Off Do to Your Credit Score?

Impact on Your Credit Score

Credit Score Drop: A charge-off usually leaves a negative mark on your credit report, indicating you failed to fulfill your loan obligations. You can expect a drop of anywhere from 100 to 180 points, depending on your overall credit history and the severity of the delinquency.

Length of Impact: A charge-off can remain on your credit report for up to seven years from the date of the charge-off, hindering your ability to access credit during that time.


Difficulty Getting Loans: With a lower credit score, securing future loans, including mortgages or auto loans, becomes more challenging. 

Higher Interest Rates: Even if you qualify for a loan, you’ll likely face less favorable interest rates due to the blemish on your credit report. This translates to paying more in interest over the life of the loan.

Security Deposits: Landlords or utility companies might require larger security deposits due to concerns about your ability to meet financial obligations.

How Can You Eliminate Charge-Offs from Your Credit Report?

Eliminating entirely  a legitimate charge-off from your credit report can be difficult, but there are a few options to consider:

Pay Off the Debt (Pay for Deletion)

This approach involves negotiating with the creditor or debt collection agency that holds the charge-off. You might be able to negotiate a settlement agreement where you pay a portion of the debt in exchange for them removing the charge-off from your credit report.  

Keep in mind:

  • This option doesn’t guarantee removal, and some creditors might not be willing to negotiate.
  • Even if successful, the record might be updated to reflect a “paid charge-off” which still has a negative impact, though less severe than an unpaid charge-off.

Goodwill Deletion (Less Likely)

In some cases, you can write a goodwill letter to the creditor explaining the circumstances that led to the charge-off and requesting them to remove it as a goodwill gesture.  This is a long shot, but it can’t hurt to try, especially if there were extenuating circumstances surrounding the missed payments.

Maintain Positive Credit Habits

Focus on building a positive credit history by making timely payments on your remaining credit obligations. This will demonstrate your ability to manage credit responsibly and help offset the negative impact of the charge-off.

Consider Credit Repair Services (Proceed with Caution)

Legitimate credit repair services can help you understand your credit report, dispute errors, and develop a plan to improve your score. However, be wary of companies making unrealistic promises or using unethical practices.


Understanding the consequences of a car loan charge-off and exploring methods to mitigate its impact is essential for maintaining your financial health. As a reputable debt collection agency, dealing with debt and credit collections, we recognize the challenges individuals face when dealing with such financial hurdles. Our goal is not only to assist creditors in recovering outstanding debts but also to provide valuable insights and assistance to those navigating the complex landscape of credit repair and financial recovery.

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