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

Key Takeaways

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.

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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 you remove charge offs from your credit report?

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.

How to remove charge offs from a credit report

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.

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.

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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:

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:

Charge-Off Accounts: What to Do Charge-Off Accounts: What Not to Do
Contact the original lender or the collection agency to inquire about your next best steps. Do not ignore the debt and expect it to go away on its own.
Determine whether you can pay off the unpaid debt with a payment plan or single cash payment. Do not let the debt continue to accrue interest over time.
Reach an agreement with the creditor that minimizes damage to your credit score. Do not leave the charge-off on your credit reports without action on your part.
Improve your credit score over time with responsible credit use, then reap the benefits. Do not pay higher interest rates and more fees each time you go to borrow.

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.

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FAQ - Charge off on credit report

How to remove a charge-off without paying

The only way to remove a charge-off from your credit report without paying is to wait until it expires from your credit reports. After seven years, a charge-off will disappear from your credit report automatically. If waiting seven years is not an option for you, try to speak to the company that placed the charge-off on your account and negotiate a repayment plan. Repaying bit-by-bit can help rebuild your credit score.

Holly D. Johnson
Holly D. Johnson Finance Expert

Holly D. Johnson is an award-winning personal finance writer who covers topics like insurance, investing, credit and family finance. As a leading voice in the travel and loyalty space, Johnson has traveled with her family to more than 50 countries over the last decade.

The author has also written extensively on the power of household budgeting, and she even co-authored a book on the topic. Zero Down Your Debt: Reclaim Your Income and Build a Life You’ll Love was originally published in 2017, and it teaches families how to use zero-sum budgeting to reach their financial goals. She is also the co-owner and founder of the family finance and travel website, ClubThrifty.com.

Johnson’s 10+ years of writing have focused on helping families make important financial decisions at each stage of their lives. The author also applies the financial principles she teaches to her own life, and she is currently on track to retire in her late 40’s with her partner. She currently lives in Central Indiana with her husband and children, and she is a regular contributor for Bankrate, CNN, Forbes, U.S. News and World Report Travel and many other notable publications.

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