What Is a Charge-Off on My Credit Report?

A charge-off represents a severe negative entry on a credit report, indicating a significant financial default. It signals to potential creditors that a borrower failed to meet their repayment obligations on an account. This designation can significantly affect an individual’s ability to access future credit, making it more challenging to secure loans, credit cards, or even housing.

What a Charge-Off Means

A charge-off occurs when a creditor formally identifies a debt as highly unlikely to be collected. While the creditor writes off the debt as a loss for financial reporting and tax purposes, this action does not forgive the debt. The consumer remains legally obligated to repay the full amount.

For the creditor, charging off a debt allows them to reconcile their books and claim the outstanding amount as a loss with tax implications. For the consumer, a charged-off account means the original creditor may cease direct collection efforts, but the debt persists. The creditor might sell the debt to a third-party collection agency or pursue legal action. This distinction is crucial, as the debt does not disappear simply because it has been charged off.

How a Debt Becomes Charged-Off

A debt typically becomes charged-off after an extended period of non-payment and increasing delinquency. For credit cards, this commonly occurs after 180 days of delinquency. Other loans, like auto or personal loans, might be charged off after 120 days.

Before a charge-off, creditors usually make multiple attempts to contact the borrower and collect the overdue amount. Common types of debts that are charged off include credit card debt, personal loans, and sometimes medical bills.

Its Presence on Your Credit Report

A charge-off appears on a credit report as a negative account status. The entry typically includes details such as the original creditor’s name, the original amount of the debt, and the date the account was charged off. This negative mark has a substantial impact on credit scores, often leading to a significant reduction in points.

Under the Fair Credit Reporting Act (FCRA), a charge-off can remain on a credit report for seven years. This period generally begins from the date of the first missed payment that led to delinquency. Even if the debt is paid or settled, the charge-off persists on the credit report for the full seven-year duration. Its status may be updated to “paid charge-off” or “settled for less than full amount,” which lenders view more favorably than an unpaid status.

Navigating a Charge-Off

After a debt is charged off, the original creditor may continue collection efforts or sell the debt to a third-party debt collector. These collectors can pursue payment through various means, including phone calls, letters, and legal action.

Paying the debt in full updates the credit report status to “paid charge-off,” which is preferable to an unpaid status, though the negative mark remains for seven years. Alternatively, settling the debt for less than the full amount is another option, resulting in a “settled for less than full amount” status on the report.

If a creditor forgives $600 or more of debt, they are generally required to issue a Form 1099-C, Cancellation of Debt, to the borrower and the IRS, as the forgiven amount may be considered taxable income. Choosing to do nothing means the charge-off continues to negatively affect credit, and collection efforts may persist. Consumers can dispute any inaccuracies related to a charge-off on their credit report, but a legitimate charge-off cannot be removed simply by disputing it.