Does Charged-off Debt Impact My Credit?

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Once debt is charged-off, it’s understood to have a different status from regular debt. But how, exactly? That doesn’t mean, for example, that the debt is no longer owed. A charge-off doesn’t mean that debt will disappear from your credit report automatically, either. However, once a debt legitimately drops off your report after reaching the end of its lifespan, it’s considered to be expired, and won’t show as a part of your credit report or be calculated in your credit score.

Understanding Charge-Offs
A charge-off is what happens when the creditor you owe chooses to write off your account and close it for the future. So when you have an account that’s been “charged-off,” you still owe that debt even though the account is closed. It doesn’t wipe out your debt; only you can resolve the debt when you pay it off. The creditor can choose to transfer your debt to its collection department, or to a third-party collection agency who will try to collect what it can from you.

Charged-Off Debts in Collections
A major myth about charged-off debt is that it’s been resolved. While its title can sound final to some, know that because your debt has been charged-off, that doesn’t end your responsibility for payment. When your debt is transferred to a collections agency, the contract you initially signed to repay your debt remained in effect – as it will until you repay or otherwise settle your account. It’s important to remember that when your debt is charged-off, you don’t make payment back to the original creditor, you now pay the company who is pursuing you for payment.

Settlements and Charge-Offs
Settling your debt means resolving it by agreeing to pay an amount less than the total with the creditor. If you negotiate a settlement with your creditor that allows you to pay off part of the debt to have it considered paid for, it should get reported as being “settled in full.” However, some debt collectors might only show that you made a partial payment on the debt and that the balance remains. If this happens, you’ll need to prove your partial payment was according to your agreement. Usually, you can do this if you have a written agreement in which the collector agrees to accept a partial payment to close out the debt. You should also be aware that the settlement can also show as potentially negative information on your report, because even though your debt was resolved, it can still be viewed negatively by lenders because it was resolved for less than the original sum and may show a late payment.

Reporting Charged-Off Debt
Charge-offs appear on your credit report for a seven-year term from the date the debt first became delinquent. However, if an account gets charged off and goes into collections, a second entry will show up on your credit account for the collection. Collections appear on your credit for seven years from the original date of delinquency. After that point, they can no longer be reported. The collection will stay on your report for this time period regardless of when you pay it off.

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About the Author
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Lander holds a Bachelor of Arts in political science from Columbia University.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from, Inc., an Experian company.   © 2014, Inc.  All rights reserved.