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If you see the term “charge off” on your credit report, it’s time brace yourself and take direct action to protect your credit score.

A charge-off occurs when a financial consumer fails to make a credit payment for a specific period of time, usually six months.

That’s because after 180 days of non-payment, the credit provider believes it can’t collect on its debt, and writes the debt off as an uncollectible. (The term “charge-off” is used by accountants to deem a debt as non-collectible.)

Since payment history comprises 35% of a consumer’s total credit score, not making payments and triggering a charge-off from a credit provider can be ruinous to a credit score.

How do charge-offs work and what can you do to mitigate any damage or even prevent charge-offs from happening? Let’s dig in and take a closer look at the issue.

How a Charge-Off Works

Once the 180-day non-payment kicks in, the credit provider will reach out to the credit reporting companies (i.e., Experian  (EXPGY) , TransUnion  (TRU) - Get TransUnion Report and Equifax  (EFX) - Get Equifax Inc. Report) and report the non-payment. In response, the credit scoring agencies will change the language on the credit report. Instead of seeing the account in question listed as “account in good standing” it shifts over to another area known as “negative items” or negative accounts.

At that point, a charge-off is activated and the consumer’s credit report – and credit score – is damaged.

That’s just the start of a consumer’s financial troubles when a charge-off lands on a credit report.

  • First, the outstanding balance in question remains on the credit report, but it’s noted as a charge-off, meaning “not paid.”
  • Next, the outstanding debt is shifted over to a collection agency. On the consumer’s credit report, the outstanding debt owed is noted as “zero”, yet the specific charge-off notation remains on the credit report for seven years, for all creditors and lenders to see.
  • Unless the charge-off is found to be inaccurate (and mistakes do happen on credit reports, so it’s worth checking) there is nothing the consumer can do to remove the charge off for that seven-year period.
  • Now, when a creditor or lender reviews that consumer’s credit report, they see the charge-off notice, and are significantly less likely to grant credit to the creditor.
  • Although the debtor may eventually fully pay off the debt, the charge-off entry on his or her credit report won’t go away. Instead, the term “charge-off” will simply be replaced with the term “paid charge-off.”

After the charge-off notice hits a credit report, it’s not uncommon for a credit score to decline up to 100 points.

A Charge-Off is Not a Collection

While a charge-off leads to collection efforts for unpaid bills, they’re not one and the same.

It’s really a matter of time and timing.

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During the run-up to the 180-day deadline that triggers a charge-off, a creditor is aware of the non-payment and has likely sent numerous notices and phone call out in an effort to satisfy the outstanding debt. But the non-payment doesn’t turn into a collection agency event until a charge-off occurs.

At that point, the creditor brings the collection agency into the picture, who then contacts the borrower via phone, email/letter, and increasingly, via text, and attempts to collect the outstanding debt.

Note the actual collections agency designation will be recorded on the consumer’s credit account, further sending that credit user’s FICO score into decline. Furthermore, the collection agency industry’s reputation for aggressiveness and relentlessness in collecting debts is well deserved, which adds further pressure to any credit charge-off situation.

Repairing a Credit Charge-Off Scenario

Once a charge-off transpires, the damage is pretty much done and you’re going to have a credit score problem going forward.

Still, that doesn’t mean ignoring some action steps that can curb or seriously reduce the impact a charge-off has on a credit score.

These strategies may help in that regard:

Pay Off the Debt

Yes, it’s easier said than done, but pay down the outstanding debt – even after a charge-off commences.

First, it’s your financial and legal responsibility to pay off credit-related debt. Ignoring the debt not only hurts your own financial situation, it makes it more expensive for other borrowers to get credit. 

That’s because lenders and creditors aren’t in the business of taking losses. When creditors write off a bad debt via charge-off, they pass on the bad debt to their other customers by raising rates and fees when extending credit.

Consequently, by ditching consumer debt once and for all, you’re not just damaging your own financial health, you’re adding financial pressure to friends, neighbors and other financial consumers.

Second, paying off your debt will paint a brighter picture with future creditors – and here’s why.

When you pay down a debt that was in charge-off mode, the designation on your credit report changes to “paid charge-off”, which lets lenders and creditors know that even though you’ve been hit with a charge-off, you did ultimately make good on the debt. If all of your other credit-related debts are being handled in a timely manner, you’ll be deemed a much better credit risk by the people that matter – creditors.

Dispute a Credit Charge-Off

If you feel a charge-off was made in error, there are ways to dispute the designation and get your credit health back in order. It isn’t easy, but if the facts are on your side, it’s doable.

These steps will be necessary to get that process underway.

Do Your Due Diligence

Check out any negative items on your credit report that lead to a credit charge-off. Pull your relevant records like cashed checks and withdrawals from your bank account from the creditor who is citing your account as “late” or “unpaid.”

Make sure to have your citations ready and contact the relevant credit agencies at the following contact address:




You’ll need to include your personal information, the credit report account cited, and any information that bolsters your case for a successful dispute resolution. If you’re having trouble putting your dispute together, refer to this sample credit dispute letter from the U.S. Federal Trade Commission.

Send the letter to each creditor, or send a paper version via certified mail. Make a copy for your own records before you do so.

Expect the credit charge-off dispute letter to take 30 days or less to be properly reviewed. The process takes that long as the credit agency transmits your dispute information to the credit provider, who must investigate the claim.

The credit reporting company will send you a response, positive or negative. 

If the dispute is settled in your favor, the credit agency will pull the charge-off from your credit report and recalculate your credit score in your favor. If the dispute is rejected, the charge-off stands and you’re back to paying off the debt as quickly as you can.

The Takeaway on Credit Charge-Offs

Nobody wants to see a credit charge-off on their credit report. It’s a red flag to creditors and it’s a problem for the creditor who owns the charge-off.

Getting free of charge-offs once they hit a credit report is an uphill climb. That’s why it’s best to pay your credit-related bills as quickly as possible – that’s the best way to steer clear of a charge-off in the first place.