Key Takeaways:
- A charge-off can appear on your credit report when a lender decides they’re unlikely to be able to collect the debt from you.
- Charge-offs, like other adverse information, can have a negative impact on your credit score.
- Charge-offs will remain on your credit report for up to seven years.
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A charge-off on a credit report is a negative item that appears on an account when a creditor writes off an unpaid debt as a loss. When a borrower fails to make payments on a debt for several months, the lender may decide to charge off the debt and may close the account. Learn more below about what a charge-off is and how it may impact your credit.
Charge-off meaning
When a debt is charged off, it means that the creditor has written the account off as a loss. A charge-off is not the same as an account in collections, though a charge-off can precede collections. A charge-off is essentially an accounting term that indicates the creditor doesn’t think they’ll be paid back the debt. This does not mean the debt is forgiven. You are still legally responsible for unpaid debt even if it has been charged off by a company.
A charge-off on your credit report
If the charge-off has been reported to the credit reporting agencies, you will see it listed in the “Pay Status” in the account’s information section. You may see the phrase “Charged off” if the account was unpaid and closed. If the charge-off has been paid, the status of the account will indicate “Account paid in full; was a charge-off". These status remarks may vary depending on where you receive your credit report. If you have any questions regarding the status of your account, you can contact the lender directly. Their contact information will be listed on your credit report.
Even though the creditor has written the debt off, they may sell the debt to a collections agency, which may attempt to collect the debt. You may be contacted by the original company to collect the debt before that happens.
If a debt is assigned or acquired by an external collections agency, a new account in collections can appear on your credit report. If the debt is transferred to a collections agency, you may need to make the payment of the unpaid debt to the collections agency, not the original account owner or lender, if you decide to do so. If you would like to pay back the original lender or company directly, you can contact them to see if this option is available.
Does a charge-off affect your credit score?
A charge-off can have a negative impact on your credit score. How much a charge-off will change your credit score will vary based on your credit history and the credit model used.
Having a charge-off on your credit report is in itself a negative item and could negatively impact your credit score. Prior to the charge-off, you likely would have had several missed payments reported for that account on your credit report. Because missed payments are an important credit score factor, these likely would have already caused a significant negative impact on your credit score. If the account goes to collections, it could further negatively impact your credit score.
Pro Tip:
Making payments on time and keeping your credit card balances low are two key ways to build or maintain healthy credit.
How long do charge-offs stay on your credit report?
A charge-off will generally remain on your credit report for up to seven years from the date of the original delinquency. Charge-offs, like other negative items on your credit report, can have a negative impact on your credit health, which is why it’s important to pay your bills on time.
| Information Type | How Long the Information Stays on Your Report? |
|---|---|
| Accounts closed in good standing | 10 years |
| Missed payments | 7 years |
| Collections | 7 years |
| Bankruptcies | Chapter 7: 10 years Chapter 13: 7 years |
Should you pay charged-off accounts?
Even though the company has written off the balance as a loss, you’re still legally liable for the debt. Whether you decide to pay it off depends on your financial and credit situation. If you have a charged-off account, accounts in collection, or need help managing debt, a credit counselor can offer guidance to help you determine the best plan for you. You can learn more about debt collection practices and resources from the Consumer Financial Protection Bureau’s dedicated debt collection page.
How to remove a charge-off from your credit report
Charge-offs can’t be removed from your credit report unless they are inaccurate or the result of fraud. If you see unexpected account information, like a charge-off, a good first step is to contact the lender directly with any questions. Your lender will have more information about specific details of the account than a credit reporting agency will. You can find lender contact information in your credit report.
You can get your credit report for free each week at AnnualCreditReport.com.
You can dispute inaccurate information on your credit report for free. If you think you’ve been a victim of fraud, there are steps to take to help you recover. TransUnion also has several fraud victim resources for identity theft victims.
If your credit is not where you want it to be, you can work on it with time and healthy habits. If you’re struggling financially, read our blog post about managing your credit through financial hardship for tips on how to manage your credit and talk to lenders about your situation.
