How Long Does a Charge-Off Stay on Your Credit Report?

A charge-off on a credit report can significantly impact a consumer’s financial standing. This article explores what a charge-off means, the circumstances under which it occurs, and how long it typically remains on credit reports.

Understanding a Charge-Off

A charge-off occurs when a creditor determines that a debt is unlikely to be collected. This declaration is typically made after a consumer has become severely delinquent on payments, often following a period of 120 to 180 days of non-payment. For instance, federal regulations require creditors to charge off installment loans after 120 days of delinquency, while revolving credit accounts must be charged off after 180 days. This action signifies that the creditor has written off the debt as a loss for accounting purposes.

A charge-off does not mean the debt is forgiven or erased. The consumer remains legally obligated to repay the amount owed. After a charge-off, the original creditor may continue collection efforts or sell the debt to a third-party collection agency, which will then pursue repayment.

The Reporting Period on Credit Reports

A charge-off is considered a derogatory mark and can significantly affect a consumer’s credit score. This negative item remains on credit reports for a standard duration, which is typically seven years. The reporting period for a charge-off begins from the date of the first delinquency that led to the charge-off, not the date the account was actually charged off by the creditor. The first delinquency could have occurred several months before the formal charge-off designation.

Credit reporting agencies, such as Equifax, Experian, and TransUnion, reflect charge-offs on a consumer’s credit report. The entry will typically indicate the account’s status as “charged-off” and may show the outstanding balance. The appearance of a charge-off signals to potential lenders that the borrower defaulted on a debt, making it more challenging to obtain new credit or favorable interest rates. The Fair Credit Reporting Act (FCRA) governs how long negative information, including charge-offs, can remain on a consumer’s credit report.

Removal from Credit Reports

Once the maximum reporting period has expired, a charge-off is automatically removed from credit reports. This removal occurs seven years from the date of the first missed payment that led to the charge-off, with an additional 180 days for certain types of debt as specified by FCRA guidelines. The credit bureaus are responsible for this automated process, ensuring that derogatory information does not remain indefinitely.

The removal of a charge-off is a procedural aspect of credit reporting and does not require any specific action from the consumer. After the legally defined period ends, the entry simply falls off the credit report. While paying off or settling a charged-off debt may change its status on the report to “paid charge-off” or “settled,” it does not shorten the time it remains on the report.