What is a charge-off on a credit card?
A charge-off is when a creditor closes a financial account like a loan or credit card after one or more missed payments. Credit card charge-offs typically happen when an account is at least 120 to 180 days past due.
Even though a charge-off means the lender is writing off the account as a loss, the borrower still has to pay back the debt. Charge-offs can harm credit scores and stay on credit reports for up to seven years. But there are steps you can take to build your credit scores back up after a charge-off.
What you’ll learn:
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When a borrower fails to make payments on a debt, the creditor might charge off the account.
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The borrower still owes the debt even after an account is charged off.
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Charge-offs can stay on credit reports for up to seven years.
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Making on-time payments, keeping credit card balances low, avoiding too many new credit applications and monitoring your credit scores may help you improve your credit scores after a charge-off.
What happens when a credit card account is charged off?
If a borrower doesn’t make payments on a credit card account for approximately 120 to 180 days, the credit card issuer may charge off the account. The charge-off will then show up as a derogatory mark on the borrower’s credit report.
A charge-off doesn’t mean the debt is forgiven. After the charge-off, the card issuer might sell the debt to a third party, like a collection agency, that may try to recover the unpaid funds.
Typically, if a third party takes over the debt, the balance of the charged-off account is changed to $0 on the borrower’s credit report. But a separate collections account with the previous account’s unpaid balance, plus any accrued interest, may appear.
How much do charge-offs impact credit scores?
Once it’s reported to the credit bureaus, a charge-off may negatively affect credit scores. But the exact impact can vary.
Credit-scoring companies like FICO® or VantageScore® use information from your credit reports to calculate your scores. Payment history is a major factor, and the missed payments that led to a charge-off can also harm your scores.
How long do charge-offs stay on credit reports?
A charge-off can remain on credit reports for up to seven years from when the account was originally considered delinquent.
Ways to improve credit scores after a charge-off
Once a credit card account has been charged off, there are steps you can take to build your credit scores, including:
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Consistently making on-time payments.
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Keeping credit card balances low.
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Only applying for the credit you need.
Charge-off FAQs
Still have questions? Here’s some more information about credit card charge-offs.
How can I remove a charge-off from my credit report?
You can’t remove a legitimate charge-off from your credit report. But inaccurate charge-offs can be disputed. If you find an error in your credit report, the Consumer Financial Protection Bureau (CFPB) recommends starting by contacting the credit bureau that produced the incorrect report.
Should I pay a charged-off account?
Even if a lender writes off an unpaid account as a loss, you may still be legally responsible for the debt. And if the debt was sent to collections, paying it off could help improve your scores, depending on the credit-scoring model.
Will my account be charged off even if I’ve been making payments?
If you’re not making at least the minimum payment, your account could be charged off. Filing for bankruptcy could also result in unpaid accounts being charged off.
If you’re having trouble paying your credit card bills, the CFPB says to let your issuer know as soon as possible. They may be willing to work with you. The CFPB also recommends reaching out to a credit counseling service for help managing debt. You can find a reputable service through the Financial Counseling Association of America (FCAA) or the National Foundation for Credit Counseling (NFCC).
Does a charge-off stay on credit reports if I pay the debt?
A charge-off can stay on your credit report for up to seven years even if you pay off the debt. But your credit report may note that the debt has been paid. It might show up as something like “Account paid in full; was a charge-off” or “Paid collection.”
Key takeaways: Credit card charge-offs
Credit card charge-offs are negative items that appear on credit reports after missed payments. If you need help managing a charge-off from a Capital One account, you can visit the Capital One Help Center to find the support you need.
