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.
A charge-off on your credit report
When a debt is charged off, it means that the creditor is no longer attempting to collect the unpaid balance and has written it off as a loss. If the charge-off has been reported to the credit reporting agencies, “Charge-off” will be listed as the status of the account. If the charge-off has been paid, the status of the account will indicate “Paid charge-off.”
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. Even though the creditor has written the debt off and has stopped attempting to collect the debt themselves, they may sell the debt to a collections agency, which may attempt to collect the debt.
You may be contacted by the original company in an attempt to collect the debt before that happens.
If a debt is acquired by a collections agency, a new account in collections can appear on your credit report. If the debt is transferred to a collection agency you would make the payment of the unpaid debt to the collection agency, not the original account owner or lender, if you decide to do so.
Does a charge-off affect your credit score?
A charge-off can have a negative impact on your credit score. The magnitude of the effect of the charge-off on your credit score will vary by person and credit model. Prior to the charge-off, you would have likely had several missed payments reported for that account on your credit report already. Because missed payments are an important credit score factor, these likely would have caused a significant, negative impact on your credit score already. If the account goes to collections, it could further negatively impact your credit score.
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 personal financial and credit situation. If you have a charge-off, 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 charge-offs 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 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.
How long do charge-offs stay on your credit report?
A charge-off will remain on your credit report for up to seven years after the date of the original delinquency. Charge-offs, like other negative items on your credit report, can have a significant impact on your credit health, which is why it’s important to organize your monthly bills and monitor your credit reports regularly. You can get free, weekly credit reports from TransUnion, Equifax and Experian through annualcreditreport.com through the end of 2023 so you can regularly read and track information on your credit reports.
If your credit score has taken a hit, with time, you can get your credit score into the range you want. For tips on getting your credit health back on track, check out our blog post about How to Rebuild Credit.
