Credit Report Charge-Offs and How Long They’ll Hurt Your Credit

If you’ve gone through challenging financial times, it’s possible you’ve fallen behind on payments to some of your creditors. As a result, you could see charge-offs listed on your credit reports. Although charge-offs hurt your credit, you can recover from them. 

Charge-Offs Defined 

If you stop making payments on a debt, eventually the lender will consider it a “bad debt,” close your account, and charge it off. A charge-off is essentially a debt that a creditor has determined isn’t likely to be paid by the borrower. Most consumer debts are charged off when they remain unpaid for 120-180 days.

It’s important to understand that if your debt is charged-off, that doesn’t mean you’re off the hook. The creditor may try to collect a charged-off debt, or more likely, the debt will be turned over to a collection agency. 

Charged-off accounts affect your credit reports in several ways. Under the federal Fair Credit Reporting Act, negative information may be reported for the following time periods: 

  1. Late payments that led up to the charge-off may appear on your credit reports for up to seven years from the date you were late
  2. The charge-off notation may appear on your credit reports for up to seven years plus 180 days from the date you first fell behind with the lender. 
  3. Any subsequent collection account(s) may be reported for seven years plus 180 days from the date you first fell behind with the lender. 

Late payments, charge-offs, and collection accounts are all considered seriously negative items on credit reports and can significantly impact credit scores. However, there are steps you can take to rebuild your credit.

Put the Debt Behind You 

First, try to resolve the debt. If you continue to owe money on the account, it may be sold by the first collection agency to another. At any point, you may be sued for the balance. If you can’t pay the full amount, try to negotiate with the collection agency to pay less than the full balance to settle the debt. In many cases, collection agencies purchase debts at a significant discount, and they may be happy to take a smaller payment. If the debt collector agrees, make sure you get the collector to confirm in writing that your payment will settle the debt in full. 

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