How Long Does It Take for a Charge-Off to Fall Off?

A charge-off on a credit report can be a source of confusion for many. This term often appears after a period of financial difficulty, signaling a significant event in one’s credit history. Understanding what a charge-off entails and how long it remains visible on credit reports is important for consumers.

Understanding a Charge-Off

A charge-off represents an internal accounting action taken by a creditor when they determine a debt is unlikely to be collected, typically after 120 to 180 days of non-payment for credit cards or other loans. When a creditor charges off an account, they essentially write it off as a loss on their financial books. It is important to recognize that a charge-off does not mean the debt is forgiven or eliminated. The consumer remains legally obligated to repay the money owed to the original creditor or to any entity that subsequently acquires the debt, an action distinct from bankruptcy or debt settlement.

Credit Reporting Timeframes

A charge-off can stay on a credit report for up to seven years. This timeframe is established by federal law, specifically the Fair Credit Reporting Act (FCRA). The seven-year reporting period begins from the “Date of First Delinquency” (DOFD) for the account, not the date it was charged off. The DOFD is the date the account first became delinquent and was never brought current again. For example, if a payment was missed on January 1, 2020, and the account was charged off in July 2020, the seven-year period would start from January 1, 2020, meaning the charge-off would be removed around January 1, 2027.

Implications on Credit Reports

A charge-off on a credit report is a negative indicator for potential lenders, appearing as a derogatory account status and signaling a failure to fulfill repayment obligations. Since payment history constitutes a substantial portion of credit scoring models, a charge-off can significantly lower credit scores, often by 50 to 150 points or more. Even after an account is charged off, its details, including the original balance and payment history, remain visible for the entire reporting period. While paying off a charged-off account may update its status to “paid charge-off,” the negative entry remains on the report for the full seven years from the DOFD. This persistent visibility can make it challenging to obtain new credit or favorable interest rates.

Debt Status After Charge-Off

Even though a creditor has charged off a debt, the consumer still legally owes the money, as a charge-off is an accounting measure for the creditor and does not erase the consumer’s obligation. The original creditor may continue their efforts to collect the debt directly from the consumer. In many cases, the original creditor may sell the charged-off debt to a third-party debt collector or a collection agency. These entities purchase the debt, often for a fraction of its face value, and then acquire the right to pursue collection from the consumer. If the debt is sold, it may appear twice on a credit report: once from the original creditor and again from the collection agency.

A charged-off debt may also be subject to legal action, depending on the statute of limitations for debt collection in the relevant jurisdiction. The statute of limitations sets a time limit during which a creditor or debt collector can legally sue a consumer to recover a debt. While these timeframes vary by state and debt type, debt collectors can still attempt to collect the debt through other means, such as phone calls and letters, even after the statute of limitations has passed, as long as they do not violate collection laws.