7 Essential Facts about Charge-Off Accounts

One Charge-off account can take up to 150 points off an excellent credit score. The higher your score was to start with, the greater the damage will be.

When an account is charged-off, it means that a creditor no longer expects to be repaid and writes off the account as a bad debt. A creditor typically waits 180 days, or six months, of non-payment before charging-off a debt.

But a charge-off does not mean you no longer owe the debt. Your creditor will add the charge-off account to your credit reports and continue to attempt to collect on the debt. Creditors may choose to handle collections in one of three ways:

  • Try to collect the debt itself.
  • Hire a collection agency to collect for them.
  • Sell the debt to a collection agency.

7 Facts about Charge-offs

1. How many points will a credit score decrease?

A charge-off is considered a significant event with regard to your score and will likely have a severe negative impact, especially if it’s a recent charge-off. 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.  The higher your score was to start with, the greater the damage will be. And, keep in mind it’s not just one credit score. Most consumers have at least 3 credit scores — One at Experian, Equifax and Transunion that will be affected.

There is some good news. As negative history grows older (and no new negative activity shows up elsewhere on your reports), its impact starts to fade. A charge-off from three years ago hurts your scores far less than a charge-off from last month.

2. Determine how long a charge-off remains on reports?

The charge-off account will be deleted 7 years from the date of the first missed payment that led to the delinquent status. It’s also referred to as the original delinquency date. If a creditor transfers or sells the charge-off account to a collection agency, the original delinquency date that determines how long the charge-off remains on credit reports does not change.

Here is an example of the charge-off lifecycle:

  • 1/1/18: You become 30-days late on a payment to your credit card issuer and never further payments.
  • 7/1/18: At 180-days past-due, the credit card issuer closes your account and marks it as a charge-off.
  • 1/1/25: The charged-off account must be deleted from your credit report by this date.

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3. Can both a charge-off and subsequent collection account appear on credit reports?

Both the charge-off account and the collection account can appear on credit reports. With both negatives on your credit reports a credit score can really take a dive. The good news is collection accounts are treated as a continuation of the original account. As a result, the original delinquency date also determines when collection accounts are deleted.

If a creditor transfers or sells the charge-off account, it does not extend how long both negatives remain on credit reports. Many times charge-off debt gets sold from one collection to another. But you should not have the same debt reported from two different collection agencies.

4. Can creditors remove charge-offs before 7 years in exchange for payment?

A creditor will typically not agree to remove an accurate charge-off from credit reports. Creditors have a contract with the credit bureaus that they will not remove negative information as a method of collecting debts. But if there are inaccuracies in the charge-off listing they can be disputed. You can always try to get a creditor to delete a charge-off as a gesture of goodwill. But they are not obligated to agree. If you get a settlement agreement with a “deletion” included you have hit a home run.

Your chances of getting a creditor to remove a charge-off may be increased if you agree to pay the charge-off in full. If you’ve already paid the charge-off, bombarding the creditor with goodwill requests may result in deletion. The request must be presented to someone in management for better chances.

Plus, a creditor may agree to remove the charge-off if you’re currently paying other obligations on time. Creditors will sometimes look at how you’re paying other bills in order to make a decision about deleting the charge-off.

The alternative would be to settle for a notation of “paid” or “closed.”  The good news is once a charge-off begins to age, it will have less effect on credit scores.

5. Will entering a payment plan re-start the charge-off removal date?

Entering a payment plan will not restart the clock for removing the charge off from your credit reports. There may be a case of re-starting the clock if you opened a new account and rolled the old debt into it. Because lenders and collection agencies are required to report the original delinquency date of the debt which starts the clock ticking on the 7-year reporting period, that date cannot be changed.

The charge-off account will still be removed once the 7 years is up, even if you are now making payments on the debt. Paid charge-offs still have the same negative impact on credit scores but if you are seeking a mortgage or auto loan it looks much better to lenders when charge-off accounts are paid.

6. Will paying a charge-off increase your credit score?

Paying will not increase your credit scores. If you are facing a debt collection lawsuit, paying a charge-off can avoid legal actions. But even with a zero balance, your credit reports still show a history of late payments and the fact the account was charged-off. A FICO Score’s purpose is to help lenders predict the likelihood that you’ll fall 90 days or more behind on any credit obligation during the next 24 months.

7. Creditors can continue to update charge-off accounts

Some creditors may continue to update a charge-off account status monthly for as long as it can remain on credit reports. If the debt has been sold to a collection agency, then the original creditor should be reporting a zero balance on the account

Can you recover credit scores after a charge-off?

All is not lost when you have a charge-off account. You can recover your credit score by making on-time payments on ALL of your other accounts and simply by giving it some time. As the charge-off gets older, it will have less impact on your credit score, especially if it’s outweighed by other positive information.

In a 2014 study by the Urban Institute, Delinquent Debt in America, it was found that among adults who have a credit file:

  • 35% of U.S. consumers (77 million) have a debt or unpaid bill that has been sent to collections, and
  • 5% of U.S. consumers have a recent debt or bill that is more than 30 days late.

Charge-off accounts should be avoided by any means necessary. It is detrimental to a credit score.

Consider a credit repair company to help remove charge-offs

While there’s no guaranteed removal of charge-offs from credit repair companies, a reputable company can help you exercise your consumer rights. They can also help you prepare and submit disputes. The Fair Credit Reporting Act (FCRA) says credit bureaus must be able to verify any item on your credit report. If a dispute is submitted and your creditor can’t verify that the dispute is 100% accurate, it must be removed from your report. A charge-off isn’t allowed to remain on your report if it’s incorrect, outdated, or unverifiable.

You can always dispute charge-offs on your own, you don’t need a credit repair company. But if you’re busy or overwhelmed by the process, you can hire a professional to deal with the credit bureaus and your creditors on your behalf.

11 thoughts on “7 Essential Facts about Charge-Off Accounts”

  1. I brought a brand new car (2018) and I recently let my old car (2013) go back well the old finance company now has reported on my credit report as a charge off/bad debt. Should I call them to make payments or should I just leave it alone and continue to make on time payments with my new finance company. Both companies report to all 3 credit bureaus

    1. Definitely continue to make on-time payments with your new lender. But you have to understand that a surrendering your vehicle (voluntary repossession) is treated just like a car repo.

      In terms of credit, there is no difference between a voluntary or involuntary repossession.

      You are responsible for any deficiency balance. Plus, if the loan is still within the statute of limitations on debt, the lender or a collection agency can pursue legal action to garnish wages. You may not have any options other than to pay the debt.

      I’m not sure if the old car had some type of defect that caused you to surrender it. If so, you may have some legal recourse to pursue based on the laws in your state and the loan contract. I suggest you seek legal advice from a consumer law attorney in your state. You can find a consumer law attorney at naca.net. Perhaps they can work out a favorable outcome.

      I know it’s difficult to make payments on a car you no longer want, but in the end, surrendering a car is often more troublesome than if you had kept it.

      Even if the car is a junker, you can’t expect to get out of a car loan contract simply by giving the car back to the lender. It doesn’t work like that.

      My only suggestion is if you decide to make payments, try to negotiate a pay for delete agreement wherein lender removes the charge-off from your credit reports in exchange for payment.

      Unfortunately a paid charge-off is still considered negative and will not help your credit score even though it looks better on your credit reports and will keep the lender from filing a court action.

      If a lender is successful in getting a judgment against you, it won’t just be for the deficiency balance on the car. Deficiency judgments accrue interest the entire time they are unpaid. In addition, a judgment may include all accrued fees on top of the remaining balance of the car loan.

      A default judgment (if you don’t answer the complaint) can end up having interest and more fees added to it. I’m not trying to scare you but a judgment does far more harm than a charge-off on credit reports because it can last 10 to 20 years depending on your jurisdiction.

      Plus, many states allow judgments to be renewed by the creditor that owns the debt at the time, essentially having the potential to never go away.

  2. Hello, I had two delinquent accounts that was being reported from Citibank for the last 7 years. I was making payments on them, but due to financial struggles and medical bills I have not made a payment since 2012. The negative inquiries were due to come off my credit report last year. Then right before tax time last year I received a charge off notice for both accounts and had to report on my taxes as income. So, instead of the accounts being removed after the 7 year period they are now being listed as charge offs and will be reported for another 7 years. That would be a total of 14 years on my credit report. Other than those two accounts I have nothing else negative on my credit report. I have tried submitting online disputes to the credit bureaus, but I never hear anything back.

    1. When an account is charged-off it means the creditor no longer deems the account an asset; therefore, it is removed from the creditor’s accounting ledger. The unpaid account is moved to the non-asset (bad debt) column.

      A creditor is required to report to the credit reporting agencies the date of first delinquency (the date you first went delinquent and no further payments were made) no later than 90 days after reporting a charge-off or that the account went into collections. The credit reporting agencies generally calculate the removal date as 7 years from the date you first went delinquent and no other payments were made.

      When a creditor actually reports a charge-off to the credit reporting agencies is not a matter of law. They can choose to report the charge-off whenever they please. The law only says that once the charge-off is reported, the creditor must report to the credit reporting agencies, the date of first delinquency (DOFD). Again, this is the date you first missed a payment and no further payments were made.

      The date of first delinquency helps the credit reporting agencies calculate the credit reporting time period which is 7 years from the date of first delinquency. Updating your credit reports with the charge-off does not signify a new charge-off date nor does it extend the credit reporting time period.

      What you need to know is that the date of the charge-off has absolutely nothing to do with when reporting of the charge-off on your credit reports will be removed. The charge-offs cannot continue to be included on your credit reports after the 7.5 years from the date of first delinquency (DOFD) on the original account according the Section 605(c) of the Fair Credit Reporting Act (FCRA).

      It is clear something went wrong. Unfortunately, it is up to you to get it corrected. This may take some extra time and investigation.

      1. Get your current credit reports either by paying for them at Experian, Transunion and Equifax. You are entitled to free credit reports from or at annualcreditreport.com once every 12 months.

      2. Review the estimated removal date or some reports may contain the actual reported DOFD.

      3. If you determine the DOFD is not reported, you will need to estimate the date you made the last payments and no other payments were made. This will give you a ball-park estimate of when the negative items are due to come off your credit reports.

      4. The credit reporting agencies rely on the DOFD reported by the original creditor when estimating when the negatives will be removed from your credit reports.

      5. You may have to rely on your own records or recollection when you made the last payment. Once you determine those dates, you have leverage to get the negatives deleted or corrected to the appropriate date.

      6. If the credit reporting agencies continue to report the charge-off past the 7.5 years from the date you made the last payment, then that is a violation of the FCRA and re-aging has occurred.

      7. Re-aging is a serious violation. At this point you can make complaints to your state attorney general, the Consumer Financial Protection Bureau and the Better Business Bureau. Really, a Better Business Bureau complaint or a CFPB Complaint should do the trick in getting the negative items removed or corrected.

      The best of luck to you.

  3. Hi Lisa, Thanks for the article! Quick question:

    I’ve got a charge-off that’s due to fall off my credit report this coming November (7 years is finally up!). The creditor continues to update my report every month. Is this constant reporting hurting my score more than if they had just left it alone all these years? Should I expect a jump of at LEAST 20 points come November? (My score is currently 646 and I’ve had nothing negative for the past few years)

    Thank you!

    1. Creditors that continue to regularly update charge-offs typically do so in an attempt to get you to settle accounts. They know full well the monthly updates keep your credit score down. Unfortunately, as long as an account remains unpaid or has not been sold to a debt collector, creditors are in their legal right to take this action.

      I cannot accurately predict how many points your credit score will increase once the charge-off is purged. It really depends on several factors such as whether current accounts are in good standing, your overall utilization rate (how much is owed) on current accounts as well as if there are other negatives affecting your scores. Nevertheless, you almost certainly will see an improvement if deleting the negative information is the only change.

    2. Creditors that continue to regularly update charge-offs typically do so in an attempt to get you to settle accounts. They know full well the monthly updates keep your credit score down. Unfortunately, as long as an account remains unpaid or has not been sold to a debt collector, creditors are in their legal right to take this action.

      I cannot accurately predict how many points your credit score will increase once the charge-off is purged. It really depends on several factors such as whether current accounts are in good standing, your overall utilization rate (how much is owed) on current accounts as well as if there are other negatives affecting your scores. Nevertheless, you almost certainly will see an improvement if deleting the charge-off is the only change.

  4. Hi Lisa, I Have a question… I have been wrestling with Midland credit management on two account that were charged off. Quick explanation.. My husband, who was the bread winner in our family, He made plenty of money to support us, then got sick in 2012 (Cancer), the V.A. through him under the bus.. (they removed half his right lung in Vietnam 1978 yet refused to compensate him)finally gave up trying when he passed away at age 60…. on 01/06/2015. The collection accounts on my reports, I tried to settle with the original companies, but they would not settle for what I could afford. So after no success with that, I had to let it go & they charged them off. These card accounts were sold 2 or 3 times ending up with Midland. There were even times when mutable collection companies were reporting the same accounts for collection. I ask the 3 credit reporting companies to verify why so many different companies were after the same accounts, asking for help. They only said the accounts were mine… that was a big help! Not! I sent a letter to Midland (the proper way) asking for validation & documentation. I read that credit card debt can not be collected by junk debt buyers. Midland refuses to validate the accounts. This has been going on for 3 months now. I’m trying to find the final way to get these off my reports…Do you think my best bet is to send all exchanged letters between myself & midland to the 3 reporting companies, or should I start a lawsuit against Midland? It’s been a rough time to say the least… but, I am determined to see this to the end. I know that as a citizen of the united states I have some rights that only few people are aware of, but I’m trying my hardest to put this behind me as much as I can. Thank you very much if you can help me know what to do next.. Sincerely, Janice Viesel

    1. Let me first say you are a tough, resilient woman! I am glad to know you are going to see this through, that’s the only way to win. The only advice I can give you is the following:

      1. Know that debt validation is a powerful tool against debt collectors, however, it works best when consumers like you are willing to see it through to court action. That’s because the Fair Debt Collection Practices Act does not require debt collectors to respond to debt validation.

      2. Keep in mind the debt collectors, creditors, banks and lenders keep the credit bureaus running by paying a fee to them in order to report on consumer’s credit files. I say that to mean credit bureaus are not likely to respond favorably to you even though you can reasonably show Midland cannot verify/validate the debt.

      3. Before you pursue legal action or send a letter to the credit bureaus, I suggest you make a complaint with the Consumer Financial Protection Bureau. The complaint should specifically state that Midland refuses to respond to debt verification but continues to report unverified debts to the credit bureaus. The resolution you are requesting is that Midland delete the negative accounts they are reporting to the credit bureaus. In 2015 there was an Order obtained by the CFPB for Midland to stop collecting debts they can’t verify. What they are doing is in violation of that Order. Submit CFPB Complaints here.

      4. If there are still multiple debt collectors reporting for the same debt you can go directly to the Consumer Financial Protection Bureau to make a complaint about the credit bureaus inaccurate reporting.

      The best of luck to you!

  5. Hello, I have a charge off that is being reported on Equifax only. It is due to be removed dec2016. should I try to dispute the information? or just let it fall off. thanks for a speedy answer.

    1. I would definitely leave it alone. You don’t want to risk disputing the charge-off then having the date of last activity being updated to a current date. It will make the charge-off look newer and may cause adverse consequences to your FICO scores.

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