How do charge offs work

Here is a list of our partners and here's how we make money. Your payment has to be that late before it can be written off by the creditor as bad debt for tax purposes. Here are four things to expect if a bank charges off your credit card debt. Your lender is still entitled to the full amount owed, though it can only collect until the state-mandated statute of limitations expires. However, your card issuer might decide not to do the work of collecting the money. Instead, it may hire a collection agency , or even sell your debt for pennies on the dollar.

Be careful , though: Debt collection scams abound, so make sure the company you pay is the one that owns your debt.

Having your account charged off can leave a black mark on your credit report for seven years after the account first went late. Considering that 35 percent of your FICO score is based on payment history, you can expect your credit score to be adversely affected.

Besides damaging your credit score, an unpaid charge-off can harm you when you want to make a major purchase using credit, rent an apartment or apply for a job. Businesses may be wary of someone with any long-term, unpaid credit accounts. Charged-off accounts and other negative marks stay on your credit reports for seven years. So if you choose not to pay, you will have to wait that long for the charge-offs to stop affecting you. Some collectors agree to settle for a reduced amount, and you might decide to pay the settlement amount.

If the debt is nearing or past its statute of limitations, you might choose to not pay the charged-off account. A few ways to stay in good standing with your creditor include:. But addressing a charge-off as quickly as possible can help triage the impact it has on your future credit standing sooner than later. How We Make Money. Jennifer Calonia. Written by. Jennifer Calonia is an L. She's covered topics like debt, saving money and credit cards. You can find her work on Business Insider, Forbes and more.

Edited By Chelsea Wing. Edited by. Chelsea Wing. Chelsea has been with Bankrate since early She is invested in helping students navigate the high costs of college and breaking down the complexities of student loans. The charge-off will only appear on credit reports from credit bureaus the lender or creditor reports to -- some may report to only two, one or none at all. How long will the charge-off stay on credit reports? If I pay the debt, will it remain on credit reports?

Yes, though it will show as a paid charge-off or paid collection when reported as paid by the lender, the collection agency or the debt buyer. A payment plan or settlement may also impact your credit scores , though it may have less of an impact on credit scores than a charge-off, depending on the credit scoring model. Knowledge Center. What is a Charge-Off?