What Is a Charge-Off on a Credit Report?

Have you just taken a look at your credit report and found a charge-off? Credit reports reflect your complete credit history, including bills you haven’t paid. However, a charge-off is much worse than one or two missed payments. It’s a serious negative credit event, and it can have a lasting impact on your credit score.

So what is a charge-off on a credit report, and what should you do if you have one? Here’s a closer look.

What is a charge-off on a credit report?

A charge-off on a credit report means that a creditor (the company you originally owed a debt to) has given up on trying to collect a debt. The creditor now considers the debt a loss.

Charge-offs don’t happen overnight. If you miss a payment, the creditor will probably try to contact you to get you to pay it. It usually takes four to six months of nonpayment for a creditor to charge off a debt.

How a charge-off affects your credit score

A charge-off has a serious negative impact on your credit score. 

Your payment history accounts for 35% of your FICO score, and it’s the most important factor. By the time a debt is charged off, your credit score has already suffered. Even one late payment could drop your score by 100 points. A charge-off can further lower your score by 100 to 150 points.

Notably, people with good credit scores suffer bigger drops after charge-offs. That’s because a sudden deviation from a good credit history looks riskier to lenders. If you had poor credit before your charge-off, lenders already saw you as a credit risk, so the drop in your score would be lower.

Does a charge-off mean you no longer owe the debt?

After a charge-off, credit reports will show that the creditor has written your debt off as a loss for accounting purposes. Does that mean you don’t owe the debt anymore?

Unfortunately, it doesn’t. After a charge-off, you’re still legally obligated to pay the debt. However, you will probably owe it to a debt collector instead of to the original creditor.

Creditors often sell charged-off debt to collection agencies for pennies on the dollar. That gives the collection agency the right to collect the debt, and most debt collectors do so aggressively. If you don’t respond to letters and phone calls, there’s a reasonable chance that the debt collector will file a lawsuit against you.

How to deal with a charge-off

If you’ve spotted a charge-off on your credit report, don’t ignore it! Consider doing one or more of the following.

Dispute it if it's inaccurate

Sometimes, credit bureaus make mistakes. If you see a charge-off on your report and believe it’s an error, you should file a dispute. If the charge-off appears on your credit report from each of the three credit bureaus (Experian, TransUnion, and Equifax), file a dispute with each one.

You can file a dispute online, and the credit bureaus generally have 30 days to investigate it.

Pay or settle the debt

Paying a charged-off account won’t remove it from your credit report, but it can lessen its overall impact on your score. 

If you can’t afford to repay the debt in full, you can try to settle it. When you settle a debt, a creditor agrees to accept less than the face value. Settling a debt is better than ignoring it, but it has more of a negative impact on your credit than paying in full.

Wait for it to fall off your report

If the charge-off is accurate and you can’t afford to settle or pay in full, your best bet might be to wait for it to come off your report. While you wait, work on establishing healthy credit habits. Kikoff can help you do that!

How long does a charge-off stay on your credit report?

Unfortunately, after a charge-off, credit reports take a while to bounce back. A charge-off will remain on your report for seven years. The clock starts counting down on the date of your first missed payment, not the date that the debt was charged off.

You don’t have to wait for a charge-off to come off your report to start rebuilding your credit. Generally, charge-offs have less negative impact over time, especially once two years have passed. Making all future debt payments on time and in full can go a long way toward improving your score.

Need to rebuild credit after a charge-off?

Seeing a charge-off on your credit report can be demoralizing, especially if you’ve been struggling to keep up with your bills and the cost of living. But the good news is that you can recover! It just takes time and effort.

We started Kikoff to help people in similar situations. If you have poor credit, it’s hard to qualify for credit cards, loans, and other products that can help you rebuild. But with us, you can get approved for a credit line with no credit check.

You use that credit line to buy items in our online store. As you pay off those purchases, we report your on-time payments to credit bureaus, helping you rebuild your score.

That’s not all we offer, though. With our secured credit cards, debt negotiation tools, and other resources, you can take control of your finances and start working toward your goals. Create your account for free today!