What Is a Charge-off and Can It Be Taken Off My Credit Report?

A stressed couple working on finances in their home. They are reading documents while sitting on their couch.

A "charge-off" occurs when a lender declares a loss and closes one of your accounts to future charges after you have repeatedly failed to pay your debt. Charged-off accounts signal that lenders cannot recover your debt and can adversely affect your credit scores in several ways.

What Does It Mean When My Account Has Been Charged-off Or Written-off?

A charge-off on your credit report is the same as having an account "written-off"—both indicate that you failed to fully pay back a creditor.

Once a lender has concluded that you are not going to pay them back, they will update your payment status to show that your account has been charged-off. Your credit scores will suffer as a result.

The lender can continue to report the past due amount and the balance owed even while reporting the account as charged-off. If you pay the balance of the account before it is sent to collections, it will be marked as "paid charge-off" on your credit report.

Credit bureaus consider charge-off accounts as derogatory marks, as they are signs you have failed to pay the debt back in the past.

In addition to the charge-off appearing on your report, failing to pay creditors may mean that your charged-off account will be sold to a collection agency. Collection agencies often buy debt from lenders for pennies on the dollar and they will pursue you for your outstanding balance.

What Does Having An Account Transferred Mean On My Credit Report?

Once a collection agency assumes your debt, they will try to get you to pay what you owe. A new collection account will be marked on your credit report. Collection accounts are also considered derogatory and will negatively impact your credit scores.

Often a collection account appearing on your report and will be shown as "transferred" from the original creditor. This means that the ownership of the debt has moved from the original lender to the collection agency.

You can no longer pay the original lender once your charged-off debt has been sold to a collection agency. In order to change the status of payment on your collection account, you must pay the collection agency that has assumed your debt.

Can I Remove A Charge-off or Collection Account Once I Pay The Debt?

Once an account is marked as charged-off by a lender it will appear that way on your credit report for the next seven years. Payment can be made to the original lender on a charged-off account, but the payment must be made before the debt is sent to a collection agency.

Paying a charged-off account will not remove it from your credit report but will change the account's status to paid charge-off. The account's balance will also be changed to zero.

If the account is sent to a collection agency and a collection account is opened in your name, this account will also stay on your report for around seven years. If you pay the collection agency, your collection account will be marked as "paid" but the account itself will remain on your report.

A paid collection account is still considered a derogatory mark but is better for your credit history than having an unpaid account.

How Long Does A Charge-off Remain On My Credit Report?

Accounts that have been charged-off will remain on your credit report for seven years from the original delinquency date. The delinquency date is the date of the first missed payment on your account.

If your charged-off debt is transferred to a collection account, that account will also remain on your credit report for seven years from the original delinquency date.

Regardless of whether you pay a charged-off account or collection agency, the derogatory marks stemming from not paying your debt will remain on your credit report for seven years. While paying the debt at any point may help your credit scores, the damaging effects of the derogatory marks will be there for a set period of time.

It is best to pay on time to ensure all of your accounts are in good standing.