How Do Charge-Offs Affect Your Credit?

Whether or not you pay the bill, a collection account that was opened because of a charged-off account can remain on your credit report for up to seven years from the date of the delinquency that led to the charge-off.

"Creditors, especially credit card companies since they don't have the option of repossessing your automobile, don't like to do this," says John Ulzheimer, a credit specialist formerly with FICO and the credit bureau Equifax. A payment to them is preferable than a default on payments.

A charge-off stays on a credit record even if you later decide to pay the balance. In its place, the fact that it was a charge-off that was later paid will remain on your credit record. As opposed to a settled account, which suggests you didn't pay the full quantity you owed, a charged-off account is seen more favorably by potential lenders.

A charge-off typically has no effect beyond further lowering an already declining credit score. By the time a charge-off occurs, your credit has already been ruined by the months of late payments that preceded it.
Should You Reconcile a Disputed Account?

Even when your creditor has written off your debt as a loss, you are still responsible for paying it. As soon as possible, make arrangements to settle charged-off accounts.

Consumers are still legally responsible for the debt even if the creditor has stopped making aggressive collection attempts, according to Tayne. It could be tempting to just ignore the debt and hope it goes away, but a charge-off will negatively impact your credit for years to come.

After a charge-off, a creditor may still file suit against you up to the statute of limitations for that sort of debt, which varies by state. The average statute of limitations for collecting on an unpaid debt is between three and six years.
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