What Is a Charge-off & How Can I Remove One from My Credit?

A charge-off is a type of debt that has become uncollectible for the lender, usually because the borrower has fallen far enough behind on payments to become substantially delinquent. That said, this doesn’t mean they have given up on the charged-off debt completely. In fact, the creditor can still sell the debt to a third-party collection agency.

With all this in mind, consumers should understand that charge-offs can have a significant impact on their credit scores, and that the consequences from the impact can last for years to come. 

As a borrower, you should always strive to keep up with your bills and monthly payments to avoid damage to your credit score. However, here’s everything you need to know about charge-offs, when they occur, and what you can do about them after the fact.

Key Takeaways:

• A charge-off is an unpaid debt that your creditor gave up on collecting and was written off by the collections agency.
• A charge-off has a negative impact on your credit score and will follow you for up to 7 years until it is eventually dropped from your record.
• You cannot remove a charge off from your credit report, but paying it off can reduce the impact it has on your credit score.
• Keep in mind that borrowers with debt that has been charged-off are still legally required to repay it.

How do charge-offs occur?

Charge-offs occur when you are at least 120 days late paying a credit card bill or another debt you owe. This action means the credit card company or another lender is writing off your unpaid debt as a loss, and that they are closing the account permanently so no future charges can occur.

It’s also worth noting that charge-offs can occur even if you’re making payments on your account in an effort to get up-to-date. This typically happens when you’re making payments but they’re not sufficient to keep up with the minimum monthly payment amount required. Your account could also be charged-off automatically if you file for bankruptcy and your creditor receives notice.

Impacts of charge-offs on your credit reports

Note that you’ll see damage to your credit score when you have a bad debt that becomes a charge-off, but that the impact will actually come into play long before you get to that point. Since your payment history is the most important factor used to determine your credit score with the FICO and VantageScore scoring models, late payments and delinquency reported to the credit bureaus will cause considerable harm to your credit score first. 

Your late payments will continue to damage your credit score as they are reported to the credit reporting agencies every month. If your lender and the collection agency or debt buyer reports to the three credit bureaus, you’ll eventually see a charge-off status noted in your reports for the unsatisfied debt.

That said, it’s worth noting that the impact on your credit score may be felt with one credit bureau (or a few) but not all of them. That’s because your lender and the collection agency may only report to one or two of the credit bureaus and not all three.  

Can a charge-off be removed from your credit reports?

Like other negative items and reporting, a charge-off can stay on your credit reports for up to seven years from the date of the first missed payment. Worse, paying off a past due account will not remove the charge-off from your credit reports before this limitation is up.

In fact, paying off a past due debt will only update the status of the account. The charge-off will be listed on your credit reports as part of your credit history until it falls off automatically.

Eventually though, a charge-off or an amount in a collection account that is settled will be reported as paid by the lender, the collection agency or the debt buyer. This means that, even if this negative item remains on your credit reports, the impact on your credit score will likely lessen depending on the credit scoring model in use.

Steps to remove a charge-off from your credit reports

According to Experian, borrowers with unpaid debts that are charged-off are still legally required to pay them. This is true whether the original creditor still owns the debt, or if they have sold the debt to a collection agency or another type of debt collector. 

That said, there are some steps borrowers can take to have a charged-off account removed from their account, or to at least diminish the effects of the negative item.

• Step 1: Determine who owns the debt. Find out whether your original creditor still owns the debt, or if they have already transferred the debt to a collection agency or another type of debt collector.
• Step 2: Contact the current owner of the debt to negotiate a payment plan or debt settlement. Reach out to the owner of the debt to find out if a payment plan can be set up. You can also inquire about settling the debt for less than you owe.
• Step 3: Request a “pay for delete.” A pay-for-delete arrangement works exactly how it sounds, but you’ll have to negotiate this with your creditor and it’s not guaranteed. Basically, you agree to pay a cash settlement to have the charge-off removed from your credit report. 
• Step 4: Get your agreement in writing. Whatever you’re able to negotiate with your creditor, make sure you get the agreement in writing. This way, you’ll have proof of the agreed upon arrangement if something goes wrong.

Outside of these steps, you can also dispute charge-offs within your credit reports with the three credit bureaus — Experian, Equifax, and TransUnion. However, the Consumer Financial Protection Bureau (CFPB) says you typically cannot have negative information removed from your credit report if it’s accurate.

How to bounce back from a charge-off on your reports

If you wind up with a charge-off account because you’re more than 120 days late paying a credit card charge, a car loan, or any other debt, there’s not a lot you can do other than attempt to resolve it. You can negotiate a debt settlement agreement with the lender if they are willing to do so, but you may also be able to set up a payment plan. Either way, the charge-off will likely remain on your credit report for up to seven years from the delinquency date — the same length of time Chapter 13 bankruptcy stays on your credit reports.

That said, you can still take steps to treat your credit with better care in the future. For example, you can:

• Make sure to pay all credit card debts and other bills early or on time
• Start using a monthly budget that makes it easier to track bills and payments
• Use various financial products to improve your credit score, including secured credit cards and credit builder loans

Whatever you do, make sure you’re never in the position to deal with a charge-off again. Over time, charge-offs on your credit report will have less of an impact on your credit score, and thus, your life. With enough time and responsible credit use, damage to your credit score resulting from a charge-off will even cease completely.

Should you pay off a charge-off?

You can pay off outstanding debts that have been charged-off by creditors, but you don’t necessarily have to. Just keep in mind that negative information on your credit reports like charge-offs and late payments can stay there for up to seven years. Also note that not paying off unpaid debts will have more of a negative impact on your credit than they will if you resolve them with a payment plan or a debt settlement agreement.

Generally speaking, you should pay off a charge-off if it’s legitimate since you are legally responsible for repaying the debt. After all, letting an unpaid debt that is charged off linger on your credit reports could significantly impair your ability to qualify for a car loan, a credit card, a personal loan, or a mortgage. Not only that, but paying off an outstanding debt helps you avoid being sued for non-payment, plus interest stops accruing on the unpaid balance.

However, charge-offs on your credit report that are errors should be disputed with the three credit bureaus and the company reporting the information.

What you should (and shouldn’t) do when you have a charge-off account

If you have an outstanding debt that is already late, you should expect the debt to be charged-off by the original creditor somewhere between 120 and 180 days. But, what should you do at that point? The chart below explains:

How to avoid charge-offs

When it comes to dealing with unresolved accounts that remain unpaid, your best bet is avoiding the situation altogether. In fact, you should do your best to pay all your bills early or on time, even if you can only make the minimum monthly payment.

If you need help forming a plan that helps you keep up with your monthly bills and improves your credit over time, speaking with a credit counselor can help. Most credit counselors offer a free consultation, and they can help you get on track with bills and learn to budget your money so you can avoid bad credit and all the havoc it causes.

At the very least, sit down to write out a monthly budget or spending plan that helps you remember which bills you have and when each one is due. Avoiding late payments is considerably easier when you have some sort of plan in place, yet only you can make this happen.

Glossary of terms

Charge-off: A charge-off takes place when a creditor writes off an unpaid debt after the borrower hasn’t made payments for 120 to 180 days.

Credit repair company: Credit repair companies work with creditors to negotiate lower interest rates and settlements on behalf of their clients.

Credit report: A credit report is an up-to-date reporting of a consumer’s credit movements, including their payment history, balances owed, and more.

Credit score: Your credit score is a three-digit number that represents your overall credit health.

Debt collection agency: Debt collection agencies are companies that try to collect unpaid debts from borrowers.

Delinquency: Being one month late (or later) on a credit card bill or other debt means you are delinquent.

Late payment: The term “late payment” is used to describe any payment on a bill that is paid after its due date.