What is a charge-off? (2022)

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A charge-off is a debt that a creditor has given up trying to collect on after the debtor — the person who borrowed the money — has missed payments for several months.

When you have any type of debt payments to make, you could potentially end up with an unpaid charge if your account becomes delinquent. This could happen with credit card debts, or with installment loans like an auto loan, personal loan or student loan.

(Video) What does Charge Off mean on my Credit Report? Does Charged Off mean I don't have to pay?

Regardless of the type of debt, a charge-off means that, as a last resort, the creditor can decide that the debt is a loss for the company and designate it as a charged-off account, or “charge-off.”

But that doesn’t mean you’re off the hook. Even though your account is charged off and the creditor reports it as a loss, you’re still responsible for paying back the debt. And the charge-off can remain on the credit history that shows up on your credit reports for up to seven years from the date your first missed payment was reported.

Here’s how a charge-off can affect your credit, how to tell if it’s accurate, and how you can pay it and try to get it removed from your reports.

How’s your credit?Check My Equifax® and TransUnion® Scores Now
  • How does a charge-off end up on your credit reports?
  • How much can a charge-off affect your credit?
  • Should you pay a charged-off account?
  • How to pay charged-off accounts
  • How do you remove a charge-off from your credit reports?

How does a charge-off end up on your credit reports?

Once the creditor writes off your account, it may report the account as charged off to the credit bureaus, which translates as a derogatory mark on your reports.

This derogatory mark can stay on your reports for up to a seven-year period from the date of the first payment you missed.

The creditor may have sold your account to a third-party collections agency if the debt was unsecured. In that case, the account could also appear as an account in collections on your reports.

If this happens, your credit scores may dip, and it may be more difficult to qualify for credit or get competitive interest rates.

FAST FACTS

What’s the difference between a charge-off, write-off and transfer?

A charge-off and a write-off are the same thing: A creditor decides you probably won’t pay back the debt and stops you from making additional charges on the account after your account has become seriously delinquent. This can have a negative effect on your credit. On the other hand, a “transfer” can be neutral. It means the original creditor has sold your account or moved it to a different creditor. The account may be transferred in good standing or listed as a charge-off.

(Video) What is a charge off?

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How much can a charge-off affect your credit?

Think back to the months before your account was officially charged off — you probably missed a number of payments. These missed payments alone can significantly damage your credit, because payment history is a major factor in determining your credit scores.

But your scores will most likely suffer further if the account is finally listed as a charge-off because of that derogatory mark.

Next, if your account is in collections, it could also lower your scores. And not paying the collections agency can further damage your credit, because the agency can report missed payments to the credit bureaus.

There’s a bit of good news, though: If you show that you use credit responsibly from here on out — like making on-time payments and being proactive about your debt — then the effects of derogatory marks on your credit reports can begin to diminish after about two years. And, thanks to the Fair Credit Reporting Act, you have the right to have negative information like a charge-off removed from your credit reports after seven years.

Should you pay a charged-off account?

First, it depends on whether or not the charged-off account is accurate. If there’s a charged-off account on your credit reports, one of the first steps is to verify the information.

To make sure the information about your charge-off is correct, here are a few things to look for.

(Video) How To Dispute Charge Offs

  • Your account may be sold a few times through third-party collections agencies. Make sure each sold account is marked “closed” and has a zero balance. Only the most current collections account should be listed as open.
  • Check the outstanding balance. If it’s more than you think it should be, ask the creditor to explain any additional costs or make the correction.
  • Verify the charge-off date on the original account as well as any offspring accounts in collections. The charge-off date should be the date of your first delinquent payment on the original account.

If the charge-off is legitimate

If after investigating you find that the charge-off on your reports is legitimate, it’s important to take action and pay it off. It may be tempting to not pay a charge-off, since your lender has likely stopped trying to collect on the account. But as long as the debt is yours, you’re legally responsible for it until it’s …

  • Paid
  • Settled
  • Discharged in a bankruptcy filing

Plus, that charge-off can hurt your chances of getting a loan — some lenders may ask you to pay all outstanding debt before you can take out a mortgage or other type of loan.

If the charge-off is an error

Don’t pay an erroneous charge-off. Instead, if you have anerror on a credit reportor the charge-off doesn’t fall off your reports after seven years, you canfile a disputeon your TransUnion® credit report using Credit Karma’s Direct Dispute™ tool. The credit bureaus are required to investigate disputes (as long as they’re not frivolous) and generally review them within 30 days of the filing date.

How to pay charged-off accounts

Work with the original lender

If the debt hasn’t been sold to a collections agency, you can work with the original lender to make payment arrangements. Once it’s paid off, the lender should change the status of the account to “paid charge-off” and update the balance to zero. Lenders usually see a paid charge-off as more favorable than unpaid debt.

Settle the debt

If you’ve decided to negotiate a settlement and either the original lender or the collections agency accepts less money than originally agreed, keep this in mind: It should appear on your credit reports as a “settled” charge-off. This could negatively impact your credit scores, but the account won’t be sent to collections.

Pay the collections agency

If the creditor has sold the account to a collections agency, then you’d pay the agency. Before you do, write to the agency and ask for proof that it owns the account. After you’ve paid off the debt, the account will appear on your reports as “paid collection,” which may be viewed more favorably by lenders than an unpaid account.

Once you’ve paid off the debt, through the original creditor or the collections agency, or via settlement, make sure you ask for a final payment letter. And keep checking your credit reports — if the account isn’t shown as paid, you’ll have the letter as proof you can use to help get your reports corrected.

How do you remove a charge-off from your credit reports?

According to Freddie Huynh, vice president of data optimization at Freedom Debt Relief, if a charge-off listed on your credit reports is legitimate, “there isn’t a whole lot that a consumer can do to remove it.”

(Video) Charge off: How to get one removed from your credit reports by looking for factual errors

One thing you can do is try to negotiate with the original lender. If the lender hasn’t sold the account, you can offer to pay the debt in full in exchange for the charge-off note to be removed from your reports.

Some debt collectors may offer to remove the charge-off note from your credit reports — this is sometimes known as a “pay for delete” offer. But keep in mind that lenders are required to report accurate and complete information, so any “pay for delete” service is unlikely to be successful.

Otherwise, you can just wait out the clock.A charge-off should automatically drop off your credit reportsafter seven years.

Next steps

Once you’ve taken care of the charge-off, take healthy credit steps to help improve your credit. For example, consider credit counseling services to help you make a budget and avoid delinquent payments in the future.

How’s your credit?Check My Equifax® and TransUnion® Scores Now

About the author: Kim Porter is a writer and editor who has written for AARP the Magazine, Credit Karma, Reviewed.com, U.S. News & World Report, and more. Her favorite topics include maximizing credit card rewards and budgeting. Wh… Read more.

FAQs

Should I pay off charged off accounts? ›

While a charge-off means that your creditor has reported your debt as a loss, it doesn't mean you're off the hook. You should pay charged-off accounts as well as you can. "The debt is still the consumer's legal responsibility, even if the creditor has stopped trying to collect on it directly," says Tayne.

How bad is a charge-off? ›

A charge-off or charged-off account is a debt that has become so delinquent that a creditor decides to remove it from the balance sheet. It means the debt has gone unpaid so long that creditors have assigned it a bad debt status. When an account is charged off, the creditor writes it off as a financial loss.

How do I remove charge-offs from my credit? ›

How to remove a charge-off from your credit report
  1. Check your credit report for charge-off accounts. ...
  2. Put together the details of the debt. ...
  3. If the charge-off is inaccurate, inform the credit bureaus of the error. ...
  4. If the debt is accurate and unpaid, try paying it off.
9 Jun 2022

Is a charge-off worse than a collection? ›

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. A charge-off occurs when you fail to make the payments on a debt for a prolonged amount of time and the creditor gives up.

Will my credit score go up if a charge-off is removed? ›

If you pay a charge-off, you may expect your credit score to go up right away since you've cleared up the past due balance. Unfortunately, it's not that easy. Over time, your credit score can improve after a charge-off if you continue paying all your other accounts on time and handle your debt responsibly.

Do charge offs go away after 7 years? ›

How to Remove a Charge-Off. A charge-off stays on your credit report for seven years after the date the account in question first went delinquent. (If the charge-off first appears after six months of delinquency, it will remain on your credit report for six and a half years.)

How many points does a charge-off drop credit score? ›

If a charge-off was just added to your reports last month, the account may have a significant impact on your credit scores. FICO, the most widely used credit scoring system says a charge-off can take up to 150 points off a credit score.

How long does a charge-off stay on credit? ›

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.

Can I get a car loan with a charge-off? ›

A charge-off or two isn't the end of the world, but it can impact your credit score and your chances of getting approved for a car loan. If you work with the right lender, though, you could get approved for that loan you've been looking for.

Can you buy a house with a charge-off on your credit? ›

Just because the creditor is no longer collecting the debt, it is still a big negative on a credit report and will affect mortgage qualification. However, buying or refinancing a home with either collections or charge offs is still possible. Actually, FHA loans are very lenient in these cases.

What's the difference between a collection and a charge-off? ›

When your debt gets sent to collections, it means the debt is no longer able to be settled with the original lender,” she says. When your debt is charged-off, it's considered bad debt.

What is the 609 loophole? ›

A 609 Dispute Letter is often billed as a credit repair secret or legal loophole that forces the credit reporting agencies to remove certain negative information from your credit reports. And if you're willing, you can spend big bucks on templates for these magical dispute letters.

Can you get another credit card after charge-off? ›

Can you still get a credit card after a charge-off? You will probably still be able to get a credit card after a charge-off, but you may receive a higher interest rate, and your options may be limited depending on how low your score is.

What happens to a charged off account? ›

Once your debt is charged off, your creditor sends a negative report to one or more credit reporting agencies. It may also attempt to collect on the debt through its own collection department, by sending your account to a third-party debt collector or by selling the debt to a debt buyer.

How many points will my credit score increase when I pay off collections? ›

Unfortunately, your credit score won't increase if you pay off a collection account because the item won't be taken off your credit report. It will show up as “paid” instead of “unpaid,” which might positively influence a lender's opinion.

Can a charge-off account be reopened? ›

If your credit account has been closed due to nonpayment, it is possible that the issuer may charge off your debt and assume you will not pay it back. Once your account has been charged off by the creditor, it cannot be reopened.

Is it better to settle or pay in full? ›

Generally speaking, having a debt listed as paid in full on your credit reports sends a more positive signal to lenders than having one or more debts listed as settled. Payment history accounts for 35% of your FICO credit score, so the fewer negative marks you have—such as late payments or settled debts—the better.

How many times can a creditor report a charge-off? ›

Original creditors can report a balance on the charge-off until the debt is sold. It is legal for a creditor to update a charge-off account monthly from the date of first delinquency which is approximately 7.5 years. However, there should be no balance reporting if the account has been sold to a collection agency.

How can I get a collection removed without paying? ›

There are 3 ways to remove collections without paying: 1) Write and mail a Goodwill letter asking for forgiveness, 2) study the FCRA and FDCPA and craft dispute letters to challenge the collection, and 3) Have a collections removal expert delete it for you.

What is a good credit score? ›

Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.

What does paid was a charge-off mean? ›

When an account displays a status of "charge off," it means the account is closed to future use, although the debt is still owed. The credit grantor may continue to report the past due amount and the balance owed. If you pay the account, the status will reflect as a "paid charge-off."

Why did my credit score go up after a charge-off? ›

Charge offs can stay on your credit report for up to seven years. The older an item is on your credit report, the less impact it has on your score. That means you can raise your score even after a charge off if you manage finances and credit responsibly going forward.

How good is a 650 credit score? ›

A FICO score of 650 is considered fair—better than poor, but less than good. It falls below the national average FICO® Score of 710, and solidly within the fair score range of 580 to 669.

What happens if my credit card is charged off? ›

What is a charge-off? When a debt is charged off, it's taken off the creditor's balance sheet. This generally occurs when a payment is between 90 and 180 days past due. If no payment is made by this time, the creditor assumes the debt is unlikely to be paid in the near future.

What does charge-off as bad debt mean? ›

The term "charge off" means that the original creditor has given up on being repaid according to the original terms of the loan. It considers the remaining balance to be bad debt, but that doesn't mean you no longer owe the amount that has not been repaid.

How do I remove negative items from my credit report for free? ›

How to remove negative items from your credit report yourself
  1. Get a free copy of your credit report. ...
  2. File a dispute with the credit reporting agency. ...
  3. File a dispute directly with the creditor. ...
  4. Review the claim results. ...
  5. Hire a credit repair service.
7 Jul 2022

Do I still owe money on a closed account? ›

You Are Still Liable For The Balance

Whether you close the account or the credit card company does, the balance will remain your responsibility until you've either satisfied the debt or have taken radical action, such as filing for Chapter 7 bankruptcy.

Is a repossession considered a charge-off? ›

A car loan charge off is not the same as a car repossession, but they both hurt your credit. You can have your car repossessed and have an auto loan charge-off on your credit report. One way to avoid this is to make payment arrangements or refinance your car loan to get your car back.

Can a collection agency collect on a charged off account? ›

Accounts charged off.

Once sold, the creditor charges-off the account. A charge off doesn't mean collection efforts will stop. Instead, the new owner of the debt—the debt collector—will continue to take steps to collect on the account.

What are the 11 words in credit secrets? ›

Use This 11 Word Phrase to Stop Debt Collectors
  • Keep a record of all communication with debt collectors. ...
  • Write a cease and desist. ...
  • Explain the debt is not legitmate. ...
  • Review your credit reports. ...
  • Explain that you cannot afford to pay. ...
  • Give the debt collector your current address.
21 Jul 2022

How can I raise my credit score 100 points overnight? ›

How To Raise Your Credit Score by 100 Points Overnight
  1. Pay Off Your Delinquent Balances.
  2. Keep Credit Balances Below 30%
  3. Pay Your Bills on Time.
  4. Dispute Errors on Your Credit Report.
  5. Set up a Credit Monitoring Account.
  6. Report Rent and Utility Payments.
  7. Open a Secure Credit Card.
  8. Become an Authorized User.
2 Sept 2021

What is a 623 dispute letter? ›

The name 623 dispute method refers to section 623 of the Fair Credit Reporting Act (FCRA). The method allows you to dispute a debt directly with the creditor in question as long as you have already filed your complaint with the credit bureau and completed their process.

Does Capital One give second chances? ›

Will Credit Card Companies Give You a Second Chance? Yes. Almost all credit card companies, including major issuers like Visa, Mastercard, and Capital One, have some version of a second chance credit card.

Can I get Capital One again? ›

There's one Capital One application rule that applies to all its credit cards: You can't make more than one application every six months. After you apply for a Capital One card, you need to wait at least six months before applying for another, regardless of whether Capital One approved you or not.

What debt collectors Cannot do? ›

Debt collectors cannot harass or abuse you. They cannot swear, threaten to illegally harm you or your property, threaten you with illegal actions, or falsely threaten you with actions they do not intend to take. They also cannot make repeated calls over a short period to annoy or harass you.

Should I pay off a 2 year old collection? ›

If you have a collection account that's less than seven years old, you should still pay it off if it's within the statute of limitations. First, a creditor can bring legal action against you, including garnishing your salary or your bank account, at least until the statute of limitations expires.

What happens if you pay off a charge off? ›

Paying Off a Charged Off Account

Often, when an account is written off or charged off, the creditor will sell the debt to a collection agency and the balance on the original account will be updated to zero. If so, you no longer owe the balance to the original creditor.

How long after paying off collections can you buy a house? ›

Collections show on your credit report, and outstanding collections will raise concerns for lenders. Charge-offs are debts that cannot be collected and are written off by the lender. Any debt overdue (120 days for loans, 180 days for credit card debt) must be written off.

What happens when you pay off a charged off account? ›

After you've paid off the debt, the account will appear on your reports as “paid collection,” which may be viewed more favorably by lenders than an unpaid account. Once you've paid off the debt, through the original creditor or the collections agency, or via settlement, make sure you ask for a final payment letter.

Do I have to pay a credit card that has been charged off? ›

Does charged off mean your debt is paid off? Charged off doesn't mean your debt is forgiven. Don't be misled into believing that because the creditor wrote off your balance you no longer need to pay the debt. As long as your charge-off remains unpaid, you're still legally obligated to pay back the amount you owe.

Can you buy a house with a charge-off on your credit? ›

Just because the creditor is no longer collecting the debt, it is still a big negative on a credit report and will affect mortgage qualification. However, buying or refinancing a home with either collections or charge offs is still possible. Actually, FHA loans are very lenient in these cases.

How long does a charged off account stay on your credit report? ›

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.

How many points does a charge-off drop credit score? ›

If a charge-off was just added to your reports last month, the account may have a significant impact on your credit scores. FICO, the most widely used credit scoring system says a charge-off can take up to 150 points off a credit score.

Can a charged off account be reopened? ›

If your credit account has been closed due to nonpayment, it is possible that the issuer may charge off your debt and assume you will not pay it back. Once your account has been charged off by the creditor, it cannot be reopened.

What is the 609 loophole? ›

A 609 Dispute Letter is often billed as a credit repair secret or legal loophole that forces the credit reporting agencies to remove certain negative information from your credit reports. And if you're willing, you can spend big bucks on templates for these magical dispute letters.

Why did my credit score go up after a charge-off? ›

Charge offs can stay on your credit report for up to seven years. The older an item is on your credit report, the less impact it has on your score. That means you can raise your score even after a charge off if you manage finances and credit responsibly going forward.

Will a charge-off go to collections? ›

Accounts charged off.

Once sold, the creditor charges-off the account. A charge off doesn't mean collection efforts will stop. Instead, the new owner of the debt—the debt collector—will continue to take steps to collect on the account.

What's the difference between a collection and a charge-off? ›

When your debt gets sent to collections, it means the debt is no longer able to be settled with the original lender,” she says. When your debt is charged-off, it's considered bad debt.

Can you get an old charge-off removed? ›

A charge-off is considered derogatory, so it can take time for your credit to recover once it occurs. The first step to improving your credit scores after a serious delinquency is to bring current any past-due accounts. Next, you'll want to: Make sure all your payments are on time going forward.

Can you still pay off a closed credit card? ›

You can still make payments on a closed credit card account, you just cannot make purchases with it. To pay off a balance, continue making payments the same way you did before it was closed. You can usually do this online or, if you get a paper bill, via check.

Can you pay off debt to qualify for an FHA loan? ›

FHA and VA mortgage guidelines will allow a borrower to pay down their credit card balances to $0 and the underwriter will only count a $10/month minimum payment towards the borrower's debt to income (DTI) ratio. The credit card account do not need to be paid. This is definitely good news for FHA and VA loans.

Is it true that after 7 years your credit is clear? ›

Highlights: Most negative information generally stays on credit reports for 7 years. Bankruptcy stays on your Equifax credit report for 7 to 10 years, depending on the bankruptcy type. Closed accounts paid as agreed stay on your Equifax credit report for up to 10 years.

Is it better to settle or pay in full? ›

Generally speaking, having a debt listed as paid in full on your credit reports sends a more positive signal to lenders than having one or more debts listed as settled. Payment history accounts for 35% of your FICO credit score, so the fewer negative marks you have—such as late payments or settled debts—the better.

What does paid was a charge-off mean? ›

When an account displays a status of "charge off," it means the account is closed to future use, although the debt is still owed. The credit grantor may continue to report the past due amount and the balance owed. If you pay the account, the status will reflect as a "paid charge-off."

Videos

1. Got a Charge Off In Your Credit Report? Not Sure What It Means? Watch This Video!
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2. What is a Charge-Off?
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3. Difference Between Charge-off & Collection on a Credit Report
(Ask Kristin)
4. *2022 hacks* HOW TO REMOVE EVERY CHARGEOFF FROM YOUR CREDIT REPORT * credit repair secrets*
(Credit Coach Q)
5. Do I Have To Pay Back A Charged-Off Credit Card?
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6. CHARGE OFF 2022 REMOVAL STEPS | BEST CREDIT CARD CHARGE OFF STEPS
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