If you’re behind on payments for one of your credit accounts, you may be alerted that the debt has been “charged off.” Learn more here about what a charge-off may mean for your credit. [Duration - 1:36]
Highlights:
- A charge-off means a lender or creditor has written the account off as a loss, and the account is closed to future charges
- It may be sold to a debt buyer or transferred to a collection agency
- You are still legally obligated to pay the debt
If you’ve fallen behind on payments for one of your credit accounts, you may be notified – or see on your credit reports – that the debt has been “charged off.”
But what does that mean, exactly, and how can it impact credit reports and credit scores? Here are some frequently asked questions regarding charge-offs:
What does “charge-off” mean? Simply put, a charge-off means the lender or creditor has written the account off as a loss, and the account is closed to future charges.It may be sold to a debt buyer or transferred to a collection agency.
So does that mean I don’t owe the debt any longer? No. You’re still legally obligated to pay the debt. If the debt is sold to a debt buyer or transferred to a collection agency, it may appear twice on credit reports – once from the original creditor and once from the collection agency or debt buyer.
If the debt is sold or transferred, you may end up making payments directly to the collection agency or debt buyer, not the original lender.
When do charge-offs happen? It depends on the repayment terms and the type of account, but the time frame is generally between 120 and 180 days after you become delinquent. Creditors will likely first send letters or call to remind you of the past-due amount before the account is transferred to a collection agency or sold to a debt buyer.
Can my account be charged off even if I’ve been making payments? Yes, your account may be charged off if your payments haven’t met the monthly minimum and your account becomes delinquent. Your account may also be charged offif you file for bankruptcy.
How might this affect credit reports and credit scores? If the original lender and the collection agency or debt buyer reports to any of the three nationwide credit bureaus, the status of the account will be updated to a charge-off status. Because a charge-off occurs when a financial commitment hasn’t been completely satisfied, it will likely show up on credit reports along with those late or missed payments. And because credit scores are calculated using information from credit reports, your credit scores may be impacted. The charge-off will only appear on credit reports from credit bureaus the lender or creditor reports to -- some may report to only two, one or none at all.
How long will the charge-off stay on credit reports? Similar to late payments and other information on your credit reports that’s considered negative, a charged-off account will remain on credit reports up to seven years from the date of the first missed or late payment on the charged-off account.
If I pay the debt, will it remain on credit reports? Yes, though it will show as a paid charge-off or paid collection when reported as paid by the lender, the collection agency or the debt buyer. If you pay the charge-off or collection before the seven-year period is up, it remains on credit reports but may have less of a negative impact on credit scores, depending on the credit scoring model that’s used.
If you’re facing a charged-off account, consider contacting the original lender or the collection agency to see if it’s possible to negotiate a payment plan or settlement. A payment plan or settlement may also impact your credit scores, though it may have less of an impact on credit scores than a charge-off, depending on the credit scoring model.
FAQs
Generally speaking, a charge-off appears on your credit when you have been late on your debt for an extended period of time. For credit cards and other revolving credit accounts, the period of time is 180 days past the due date. Installment loans are charged off within four months, or 120 days past the due date.
Is it smart to pay off a charge-off? ›
While paying a charged-off debt won't directly boost your credit score, exploring avenues to remove the charge-off from your credit report can be worthwhile. Negotiating with debt collectors, correcting inaccuracies, or seeking professional assistance are viable options.
How damaging is a charge-off? ›
So, while yes, a charge-off will lower your credit score, it usually happens only after four to six months of missed payments and consequential credit score reductions. By then, your score might already be in bad shape. Your credit could be damaged for seven years.
How long can a charged-off debt be collected? ›
Old (Time-Barred) Debts
In California, there is generally a four-year limit for filing a lawsuit to collect a debt based on a written agreement.
What is the charge-off rule? ›
A charge-off means a lender or creditor has written the account off as a loss, and the account is closed to future charges. It may be sold to a debt buyer or transferred to a collection agency. You are still legally obligated to pay the debt.
Can a creditor sue you after a charge-off? ›
Yes, you can be sued for a debt that has been charged off.
However, a charge-off means that one creditor has written the debt off and either sold it or gave it to another debt collection agency to collect on. If your debt has been charged off, you do owe the balance.
Can you negotiate a charge-off? ›
If the charged-off account belongs to you and all the information being reported about it is accurate, you could try negotiating with the creditor or debt collector to update or remove the charge-off account from your credit file.
Can you reverse a charge-off? ›
What you can do is contact your original creditor. You can ask them—very politely—what it would take in order to have the charge-off removed. At the very least, they'll likely ask you to pay back at least a portion of what you owe. In this situation, some creditors may offer a “Pay for Delete” agreement.
Should I pay a charge-off in full or settle? ›
A paid-in-full status is better for your credit report than a settled status. Future lenders prefer to see that you've paid what you owe in full rather than settling for less. Avoids tax consequences. The IRS may consider forgiven debt as income, and you may have to pay taxes on it.
Is a charge-off worse than collections? ›
Charge-offs tend to be worse than collections from a credit repair standpoint for one simple reason. You generally have far less negotiating power when it comes to getting them removed.
If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.
How do you beat a charge-off? ›
What you can do is contact your original creditor. You can ask them—very politely—what it would take in order to have the charge-off removed. At the very least, they'll likely ask you to pay back at least a portion of what you owe. In this situation, some creditors may offer a “Pay for Delete” agreement.
Does a charge-off have to be paid back? ›
When a bank charges off a loan, it is an accounting procedure. It does not eliminate your obligation to the bank. Unless the bank forgave or cancelled the debt, you are still obligated to repay the loan.
Can you remove a charge-off without paying? ›
You can remove incorrect charge-offs from your credit report without paying. If you can prove it's erroneous, the three credit bureaus are legally obligated to remove it from your credit report. Removing a legit charge-off before its scheduled deletion date without paying off the debt is unlikely.
Should I pay a 6 year old charge-off? ›
Unpaid debts can stay on your credit report negatively impacting your score for up to 7 years. Paying off the debt won't necessarily remove it from your credit history, but could improve your score over time.
