Definition
A charge-off occurs when a creditor writes off a debt as a loss on their books after determining it's unlikely to be collected, typically after 180 days (six months) of non-payment. Despite the name, a charge-off doesn't mean you no longer owe the debt or that collection attempts will stop. The creditor or a third-party collection agency can still try to collect the debt, and you remain legally responsible for payment. A charge-off is one of the most serious negative marks on a credit report and can significantly damage your credit score. It typically remains on your credit report for seven years from the date the account first became delinquent.
Frequently Asked Questions
Does a charge-off mean I no longer owe the debt?
No, a charge-off is an accounting term used by creditors. It doesn't eliminate your legal obligation to pay the debt. The original creditor or a collection agency that purchases the debt can still pursue payment through calls, letters, lawsuits, or other legal means.
How does a charge-off affect my credit score?
A charge-off severely damages your credit score, potentially lowering it by 100 points or more. It signals to future lenders that you failed to repay a debt as agreed, making you a high-risk borrower. The impact diminishes over time but remains significant until it falls off your credit report.
Should I pay a charged-off account?
Yes, it's generally advisable to pay a charged-off account. While paying won't remove the charge-off from your credit report, it will update the status to 'paid charge-off,' which looks better to potential lenders. It also prevents possible legal action and may be required before you can obtain new credit in the future.
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