What is a Charged Off Account?

blog illustration image

Q. What is a charged off account on my credit report?

Dear Reader,

Seeing a charged off account on your credit report can be a bit confusing because the term is not self-explanatory. It doesn’t help that “charged off” is used interchangeable with “written off,” which in many scenarios means that the account has been paid off. In this context, charged off refers to an account that has become so delinquent that the creditor considers it a loss and has given up trying to collect any payments on it. Usually this happens approximately 180 days after the first missed payment.
Once your account becomes charged off, it does not go away. The creditor can collect the debt, sell it to debt collectors, or pursue legal action to collect the debt. When the account is in collections, you will see that the charged off account appears twice on your report, first as the original charged off account, which is now closed, and then, as a new collection account. The information and details about a charged off account will remain on your credit report for seven years after the last day of reported activity. However, the information about the collection account stays on your report indefinitely as long as the debt collector actively seeks payments on it. Yet, there is a time limit in which a creditor or debt collector can sue you to collect payment. This timeframe is called the statute of limitations and it varies in each state. After this time has expired, they can still attempt to collect the debt, but they cannot take you to court.
Having a charged off account on a credit report can be troublesome and will damage your credit history and lower your score. This situation should be handled quickly and effectively. For instance, if the account is in collections, you should pay it off to minimize further damage. If you cannot pay it off with a lump sum, work with the debt collector to establish a debt repayment plan. Ideally, you should prevent your accounts from becoming delinquent and take action when you first realize you have difficulties making your payments. Sometimes, it is a bit difficult to create a repayment strategy if your budget is tight, but there are many options to help you ease the burden and minimize damage to your credit. Some of these can include a debt management plan, a self-administered payment plan or a written agreement with the creditors. You can always talk to a certified credit counselor from an NFCC member agency. They can objectively evaluate your situation and help develop a repayment strategy that works for you. Your situation is as unique as your solutions. As usual, the more you know about your finances and options, the better decisions you will make.
Bruce McClary, Vice President of Communications
Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.

If you have a question about your own specific financial situation, don’t hesitate to submit your question to our experts today! If you would like a thorough review of your personal financial situation, contact one of our nonprofit credit counseling agencies today!

*Some questions have been shortened and/or altered for publication purposes while others have been published as is.