Key takeaways
- A charge-off is an accounting step: the card company writes the debt off as a loss, usually after about six months of missed payments.
- You still owe the debt. The company or a debt buyer can keep trying to collect.
- A charge-off is a serious negative mark that can stay on your credit report for up to seven years.
- Paying or settling won’t erase the charge-off, but the account can be updated to show it’s paid or settled.
- Check that the debt is yours and the amount is right before you pay.
If you’ve fallen far behind on a credit card, you may see your account marked “charged off.” It’s easy to assume that means the debt was forgiven. It doesn’t. Here’s what a charge-off really is and what you can do about it.
What a charge-off means
A charge-off is when the card company decides it’s unlikely to be repaid and writes the debt off as a loss on its books. Under federal banking guidance, credit card accounts are generally charged off at 180 days past due, about six months of missed payments.
It does not cancel the debt. You still legally owe it.
What happens after a charge-off
The card company may:
- Keep collecting itself.
- Hire a collection agency to collect for it.
- Sell the debt to a debt buyer, who then tries to collect. See what is a debt buyer.
- Sue you to collect, depending on the amount and your state’s laws.
Whoever collects must follow federal debt collection rules. Read your rights when a debt collector calls.
How it shows up on your credit report
A charge-off is one of the most serious negative marks on a credit report. The late payments leading up to it are reported too. According to the CFPB, most negative information can stay on your report for seven years.
If the debt is sold or sent to a collector, you may also see a separate collection account. The same debt shouldn’t show a balance owed in two places. If it does, you can dispute it. See how to dispute an error on your credit report.
Your options
Confirm the debt first
If a collector contacts you, ask for the validation notice and check the amount. See how to ask a debt collector to prove a debt. If the debt is very old, check whether it’s time-barred before paying anything.
Pay in full
Paying in full won’t remove the charge-off from your report, but the account should be updated to show a zero balance and that it’s paid. That looks better to future lenders than an unpaid charge-off.
Settle for less
You may be able to settle for less than the full balance. Get the agreement in writing before you pay. The account will usually show as settled, and forgiven debt may be taxable. See can you negotiate credit card debt yourself.
Set up a payment plan
If you can’t pay a lump sum, ask for a payment plan you can afford, in writing.
Get help with several debts
If you have more than one charged-off account, a nonprofit credit counselor through the NFCC can help you plan. If the total is far beyond what you can repay, a free consultation with a bankruptcy attorney may help; see Chapter 7 vs. Chapter 13 bankruptcy.
Watch out for
- Paying a debt you haven’t verified. Some callers are scammers. See fake debt collectors.
- Companies promising to remove an accurate charge-off for a fee. No one can legally remove accurate negative information.
- Ignoring a lawsuit. If you’re sued, respond by the deadline. See what to do if you’re sued for a debt.
Rebuilding afterward
Even with a charge-off on your report, you can rebuild. On-time payments on your other accounts, low card balances and time all help. See how to rebuild credit after debt problems.
The bottom line
A charge-off is the card company’s bookkeeping, not forgiveness. You still owe the debt, and it can hurt your credit for years. Verify it, decide whether to pay, settle or set up a plan, and get every agreement in writing.
Sources: OCC Bulletin 2000-20: retail credit classification · CFPB: how long negative information stays on your report · CFPB: how to negotiate a settlement with a debt collector