What Is a Charge-Off? Meaning and How It Affects You

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A charge-off is an accounting term creditors use to mark a debt as unlikely to be paid and write it off as a loss. It doesn’t cancel the debt — you’re still legally obligated to pay it.

While a delinquent account simply means the borrower is late with payments, a charge-off is when they’re substantially behind. It’s considered worse than delinquent because the creditor has given up collecting the debt through the normal billing process.

When Does an Account Get Charged Off?

Charge-offs usually occur within 120 to 180 days of nonpayment. Here are some common scenarios that can lead to an account getting charged off:

• Job loss or reduced income 
• Medical emergencies
• Mental health issues, like depression or anxiety
• Identity theft or fraud
• Lack of contact with the borrower after several missed payments

How Does a Charge-Off Affect Your Credit?

Since payment history makes up 35% of your FICO score, a charge-off (plus the late and missed payments leading up to it) can lower your score significantly.

A charge-off stays on your report for seven years from the date of your first payment that led to the charge-off. However, it usually affects your score less over time.

When applying for credit in the future, lenders often view charge-offs as a red flag. It suggests high-risk behavior with money and poor credit management. As a result, it can be more challenging to qualify for credit cards, loans, mortgages and even rentals in the future.

Do You Still Owe the Money on a Charged Off Account?

However, unless the debt is settled, paid or discharged in bankruptcy, you’re still responsible for the balance. 

After charging off an account, a creditor may choose to:

• Sell it to a debt collection agency
• Assign it to a third-party collector
• Continue trying to collect the debt internally

If the debt goes to collections, you’ll have to contact and pay them instead of the original creditor. It might also show up separately from the original charge-off on your credit report, which means you’ll have two negative marks on your report. 

Can You Remove a Charge-Off from Your Credit Report?

In most cases, you’ll have to wait seven years for the charge-off to fall off your credit report naturally. However, you may be able to dispute it if the information is incorrect or you don’t recognize the account.

If you find an inaccuracy, you can file a dispute with the credit bureaus reporting the incorrect information. Make sure to provide any documentation that supports your claim.

If the charge-off is legitimate, you might be able to negotiate a pay-for-delete agreement, meaning you offer to pay the debt with the condition that they remove the account from your credit report. However, it’s pretty rare for a creditor to agree to this.

How to Handle a Charge-Off and Rebuild Your Credit

Here’s what to do if you notice a charge-off on your credit report:

Step 1: Confirm the Charge-Off Details

First, you’ll want to verify the details of the charge-off. To do this, request a free copy of your credit report from all three credit bureaus (Equifax, Experian and TransUnion) through AnnualCreditReport.com.

Once you receive the reports, verify the following information:

• The amount owed
• The original creditor
• The date of first delinquency
• Whether the debt’s been sold or is still with the original creditor

Step 2: Decide Whether to Pay the Debt

Paying the debt won’t erase it from your credit report, but it could minimize the impact on your score. It also shows lenders that you’ve taken responsibility for the debt, which could help you get approved for credit in the future. 

Some creditors may even settle the account for less than the full balance. Your credit report will show that you paid less than the amount owed, but that’s still better than the debt being completely unpaid. 

You could also try negotiating a pay-to-delete agreement. However, it’s unlikely to work due to reporting requirements from the major credit reporting agencies.

Step 3: Work with the Creditor or Collection Agency

Once you decide whether you want to pay the debt or settle, you’ll need to contact the creditor. 

If the debt is still with the original creditor, you can usually find their contact information on past billing statements or their official website. If the debt is with a collection agency, however, their phone number should be listed on your credit report.

When negotiating with the creditor, make sure to stay polite and professional. Ask whether you can settle for a lower balance, set up a payment plan or get the account deleted if possible.

Whatever solution you and the creditor decide on, make sure to get everything in writing to protect yourself legally and ensure they honor the agreement. 

Step 4: Monitor Your Credit Report

After reaching an agreement with the creditor, check your credit report regularly for updates. 

Creditors usually report to credit bureaus monthly, so it may take a few weeks to see the change reflected on your report.

If the status of the charge-off isn’t updated, you can contact the credit bureau reporting it and file a dispute. Make sure to include the written agreement you requested from the creditor as proof.

Preventing Charge-Offs in the Future

After learning what is a charge-off, you’ll want to try to prevent one in the future. Below are some tips on how you can avoid a charge-off:

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