What Does a Charge-Off Mean on Your Credit Report?

By Janet Berry-Johnson, CPA
Reviewed by: Lauren Bringle, AFC®
Published on: 06/25/2019

Debt – it’s almost as American as baseball, hot dogs and apple pie.

Roughly 62.4% of American adults carry credit card balances and 17.5% have student loans, according to an analysis from Debt.com [1].

If you're one of the millions of Americans in debt and are falling behind on credit card and other loan payments, there's a good chance you'll see a "charge-off" the next time you check your credit report.

So, exactly what does a charge off mean on a credit report? Here’s what you need to know about charge-offs and how they impact your credit.

What is a charge-off?

A charge-off is when you are so late on your credit card or other loan payment that your lender gives up trying to collect the balance and writes your account off as a loss. Depending on the types of credit accounts you have, this may happen 120 or 180 days after you stop making payments.

When the lender writes off your account, the unpaid debt doesn't just go away. Typically, the creditor sells the debt to a collection agency. At that point, you no longer owe money to your original lender.

When reading your credit report you will see that the original debt has been charged off and a new account will appear for the debt owed to the collection agency. From that moment forward, a debt collector will be responsible for recovering your charged off debt.

How does a charge-off impact your credit history?

If you have a late payment on your credit card debt and continue to put it off, it can have a negative impact on your credit history and score. Make no mistake, a charge-off is a negative item on your credit report that will be reported to credit bureau institutions. Like other negative information, it will remain on your credit report for seven years from the original delinquency date – the date of the first missed payment that led to the charged off status.

How this charged off debt impacts your credit score depends on a couple of factors:

1. Your beginning credit profile

Creditors typically report late payments to credit bureaus by how past due they are. According to FICO,[2] creditors report payments as 30-, 90-, 120- and 150-days late. So by the time you get to a charge-off, your credit score has already taken several hits.

The drop in your score from those late payments and the eventual charge-off depends on your overall credit profile. If you have a long history of late payments and charge-offs, the effect of another account going to collections may be negligible. However, if you’ve generally managed credit responsibly and maintained a healthy credit score, the impact could be significant.

According to Equifax, a 30-day delinquency could cause as much as a 90- to 110-point drop in a credit score of 780 for someone who has never missed a payment. Meanwhile, someone with a credit score of 680 and two prior late payments in the past couple of years could see a 60- to 80-point drop in credit score after being hit with another delinquency.

Essentially, by the time your account reaches the charge-off point, your credit score will decrease a little more, but most of the damage has already been done due to the missed payments.

2. When the charge-off occurred

A credit score considers late payments and other negative information on your credit report using three criteria:

  1. How recently it happened
  2. How severe the late payments or negative information is
  3. How frequently it occurs

Because of this, a recent charge-off is more damaging to your credit score than one that happened a long time ago. If you take steps to start managing your credit responsibly, such as making on-time payments and keeping your balances low, you will begin to see an improvement long before the seven-year window is up.

However, as long as the charged-off debt remains on your credit report, you may have trouble getting approved for a new loan or credit card. Lenders view a credit score as an indicator of the amount of risk they’re taking on by loaning money to you. A history of paying your bills on time and a high credit score generally indicate you will continue to repay debts as agreed.

On the other hand, a history of late payments, charge-offs and a low credit score cause lenders to view you as a high-risk borrower. Some companies may offer personal loans for bad credit or a line of revolving credit, but you’ll likely have to pay a higher interest rate if you are approved. If you can’t qualify for a loan or credit card due to your bad credit, you may want to consider applying for a credit builder loan to improve your financial standing.

Will paying a charged off account help your credit score?

Maybe you’ve had some credit issues in the past but now want to get out of debt and rehab your credit score. In that case, you may wonder whether paying off a charged off account will help and remove collections from your credit report.

Unfortunately, paying off an account in collections won’t immediately improve your credit score – at least not in any significant way. However, it can help improve your score over time. There are many steps you have to take to build your credit score once again.

Once the debt is paid in full, your credit report will be updated to show the account as “Paid Collection.” The collection will remain on your credit report for seven years, but paying off the balance will lower your outstanding debt, which may have a positive impact on your credit score.

How to pay a charged off account

Remember, if your original creditor sold or transferred the debt to a collection agency, the balance on the original account will be zero, and the collection agency is now the legal owner of the debt. This means you’ll need to make payments to the collection agency rather than your original lender.

Generally speaking, you have two options for debt settlement:

  1. Lump sum payment
  2. Installments

Lump sum payment

Paying off the balance in full all at once is the fastest way to resolve a collection. It may also be the cheapest way to handle your debt, since you may be able to negotiate a lower payoff amount. Just keep in mind that settling the account for less than the full balance owed may not have as positive an impact on your credit score as paying the balance in full.


Paying off the balance by setting up a payment plan where you pay down the debt in regular installments may be a better option than waiting until you save up enough money to pay the balance in full. That’s because the debt collector agency may be able to charge interest on the outstanding balance. The Fair Debt Collection Practices Act (FDCPA)[3] allows a collection agency to add interest and fees to the balance as a part of their collection efforts.

Typically, the interest rate charged by the collection agency charges cannot be higher than the rate listed in the terms and conditions of your contract with the original lender. Making monthly payments toward your balance may limit the amount of interest and fees you’ll pay over and above the original amount owed.

Before contacting the collection agency about your outstanding debt, review your finances and determine whether you can afford to pay off the balance in full or if you’ll need to request an installment plan. Then reach out to the collection agency with your offer.

You might also consider your options for establishing a debt management plan, which you can find via some nonprofit organizations or consolidating your debt to make it more manageable.

While it might be tempting to work with a credit repair company that promises to handle the negotiations for you, doing so can be expensive. Plus, the credit repair industry is rife with scams[4] that can further damage your credit.

Once you've discussed your payment options with the collection agency and agreed to either a lump sum or monthly payments, get the agreement in writing. Make sure you review the debt settlement agreement thoroughly before submitting payment, so you have recourse if the collection agency doesn't hold up its end of the deal.

How to dispute a charge off

If your credit report has an inaccurate credit card charge off, you can dispute the claim. In some cases, you may also want to file a claim if the charge-off account still shows delinquent payments after the seven years have passed. If you find yourself in this situation, you are going to want to talk to a credit reporting agency or the collections agency as soon as possible.

How to avoid charge off debt

The easiest way to avoid charge off debt affecting your credit score is to not let it happen in the first place. By making on-time debt payments to your loan or credit card company, you'll be able to manage your debt more easily and prevent further damage to your credit history. If you do have unpaid debt building, consider a debt repayment plan or talk to a financial professional.

Bottom line

Now that you understand the answer to "what is a charge off?", you know that a charge off on your. credit report will negatively impact your credit score and make it more difficult for you to borrow in the future, so try to avoid delinquent debt whenever possible.

If you do face financial difficulties and have an account sent to collections, don’t panic. It is possible to recover from a charged off account. Get in touch with your creditor and pay off your debt as soon as possible. Then work on rebuilding credit so you can start to see signs of improvement over time.


  1. Debt.com. “Personal Finance Statistics” https://www.debt.com/statistics/ Accessed March 23, 2021

2.cMyFICO. “What are the different categories of late payments and how does your FICO® Score consider late payments?” https://www.myfico.com/credit-education/faq/negative-reasons/late-payments Accessed March 23, 2021

  1. Federal Trade Commission. “Debt Collection FAQs” https://www.consumer.ftc.gov/articles/debt-collection-faqs Accessed March 23, 2021

  2. Consumer Finance Protection Bureau. “How can I tell a credit repair scam from a reputable credit counselor?” https://www.consumerfinance.gov/ask-cfpb/how-can-i-tell-a-credit-repair-scam-from-a-reputable-credit-counselor-en-1343 Accessed March 23, 2021

  3. Experian. "What Is a Charge-Off?" https://www.experian.com/blogs/ask-experian/what-is-a-charge-off/ Accessed March 23, 2021

About the author

Janet Berry-Johnson is a Certified Public Accountant and personal finance writer. Her work has appeared in numerous publications, including CreditKarma and Forbes. See Janet on Linkedin and Twitter.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® with Self Financial– a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.

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Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).

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Written on June 25, 2019
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