When you stop making payments on a debt, the lender may eventually stop trying to collect payments from you. When they choose to do this, they “charge off” the debt. This means they write the loan off as a loss for the company, cancel your accounts and likely report the charge-off to the credit bureaus. The lender is marking your debt as “uncollectible.”

It’s important to note that your debt being charged off doesn’t mean it’s forgiven. Instead, it’s simply handed to someone else. You still have to pay your debts, and now you have to contend with the consequences of a charge-off on your credit report.

Entering credit card details

How does a charge-off affect your credit?

Unfortunately, a charge-off is one of the worst types of negative items you can have on your credit report. It shows future lenders that you’re not a reliable borrower and that you have a history of not paying back your debts.


A charge-off can typically stay on your credit report for up to seven years, so it will impact your ability to get approved for credit for many years to come.

A charge-off can lower your credit score by many points. Additionally, the months of missed payments leading up to the charge-off will also likely lower your credit score significantly. And, if the charged-off debt is sent off to a collection agency, having a collection account on your credit report will likely cause a notable drop in your credit score as well.

Paid vs. unpaid charge-offs

A charge-off will show up on your credit report as either paid or unpaid. When you pay the charge-off in full, it will be updated as “paid” on your credit report. However, paying your charge-off won’t remove it from your credit report and will have a minimal impact on your credit score.


Still, future lenders who go through the effort of underwriting will be able to see that while you have a charge-off on your credit report, you did pay it in full.

And keep in mind that if your charged-off account goes unpaid, either the original lender or the debt collection company that bought your debt may attempt to collect the debt from you.