My account was "charged-off" and placed in collection. Will that go on my credit report? (2024)

FAQs

My account was "charged-off" and placed in collection. Will that go on my credit report? ›

Because a charge-off occurs when a financial commitment hasn't been completely satisfied, it will likely show up on credit reports along with those late or missed payments. And because credit scores are calculated using information from credit reports, your credit scores may be impacted.

With a charge-off, your creditor essentially gives up trying to collect and writes the amount off as an unpaid balance. However, you're still responsible for repaying, the debt and your creditor may sell the charge-off to a collection agency.

Instead, it will be marked as a paid-off charge. Paying it off may improve your credit score. You can only get a charge-off removed from your credit report if it was put there in error. However, it will automatically fall off your report seven years after the first date the account is reported as delinquent.

Keep in mind that when you pay a charge-off in full, that doesn't necessarily remove it from your credit report. You may have to request and argue your case to have it removed. Otherwise, it will remain on your report as a “paid,” “closed,” or “settled” charge-off. You may also ask your creditor to “re-age” your debt.

Collections accounts generally stick to your credit reports for seven years from the point the account first went delinquent, even if the account has been paid in full. But you may want them off sooner than that because unpaid collections can make you look bad to potential creditors.

Is a charge-off better than a repossession? While you might get to keep your vehicle if your auto loan is charged off, both charge-offs and repossessions negatively affect your credit history and could impact your ability to qualify for a loan in the future.

Paying is often a good idea, not only because you presumably owe the debt they're seeking or even because it will get the bill collectors off your back. There's a chance, if no guarantee, that paying off an account in collections could benefit your credit score.

Impact of Paying Off A Past Due Account

Paying an outstanding debt is always better than not paying it, but how much it will affect your credit score (if at all) depends on other factors in your credit history.

After seven years, a charge-off will disappear from your credit report automatically. If waiting seven years is not an option for you, try to speak to the company that placed the charge-off on your account and negotiate a repayment plan.

Paying off old debts before they reach the statute of limitations or credit reporting deadline can positively influence your payment history, a significant factor in your FICO score. This move can boost your credit score and contribute to a healthier credit profile.

Can you buy a house with a charge-off on your credit? ›

Most lenders want a borrower to have a DTI below 43%. With exceptions, your lender may require you to pay off any collections and charge-offs on your credit report. Even if your DTI is within a healthy range, the loan officer may indicate collection items are delaying loan approval.

If there is an incorrect charge-off on your credit report, you'll need to contact the credit bureau directly—and you'll need to do so in writing. You can send them a “dispute” letter that outlines who you are, what information you would like to have removed, and why the information in question is incorrect.

Most people would probably agree that paying off the old debt is the honorable and ethical thing to do. Plus, a past-due debt could come back to bite you even if the statute of limitations runs out and you no longer technically owe the bill.

Send a dispute

The FCRA allows consumers to dispute credit report errors and fraud. So, if you check your credit report and discover a collection account that shouldn't be there, you can send a dispute to Equifax, TransUnion, or Experian and ask them to remove it.

After seven years, a charge-off will disappear from your credit report automatically. If waiting seven years is not an option for you, try to speak to the company that placed the charge-off on your account and negotiate a repayment plan.

The debt is shifted from asset to liability.

Step one of an auto loan charge-off is simply an accounting classification. The lender shifts the loan from its assets column and officially categorizes it as a liability, which means the loan is no longer considered income for the lender. Instead, it is considered a loss.

All told, it's really not a great thing to let your debt get to the point where it's gone into collections. If you're able to reach out to your original creditor and work out a payment plan first, you'll generally be in a better position.