How Long Do Charge-Offs Stay on a Credit Report?

A charge-off occurs when a creditor, usually a credit card company, removes an unpaid debt from its accounting ledger. After charging off bad debts, a creditor has the option to write the debt off as a tax loss or sell the debt to a collection agency. Charged-off debts appear on your credit report and damage your credit rating.

Time Frame

The Fair Credit Reporting Act notes that charge-offs can remain a part of your credit file for seven years from the date the debt was charged off. Although charged-off accounts damage your credit, any late payments you incurred prior to the charge-off also have a negative impact on your credit rating. Late payments, like charge-offs, remain for seven years.

Features

If your creditor sells your unpaid debt to a collection agency, the collection agency then has the right to add a collection account to your credit history. Because the collection account is a direct result of the charge-off, the credit bureaus must remove it at the same time they remove the charge-off -- regardless of how long the collection account itself has been on your credit report.

For example, if a collection agency purchases the charged-off debt but fails to add a derogatory trade line to your credit report until five years after the original creditor charged off the account, the collection account can remain a part of your credit history for only two years rather than the full seven.

Misconceptions

Many consumers believe that paying off an old charge-off will help them improve their credit scores or cause the credit bureaus to delete the charge-off from their credit histories. While some lenders, such as mortgage lenders, require borrowers to pay off outstanding debts before approving a loan, paying off an old charge-off will neither remove it from your credit history nor improve your credit rating. It will, however, show up on your credit report as a "paid." Paid charge-offs look better to lenders than unpaid charge-offs.

Considerations

If your creditor or a collection agency sues you for the debt and wins a judgment against you, the judgment will also appear on your credit history. Although the judgment occurred as a direct result of the charge-off, the judgment's reporting period begins on the date the court awarded it. The standard reporting period for a judgment is seven years. Thus, if your creditor waits three years after the charge-off to file a lawsuit against you, the charge-off will negatively impact your credit for 10 years rather than seven.

Significance

A charge-off has the greatest amount of derogatory impact on your credit rating as soon as it occurs. Over time, negative entries in your credit history have less influence on your credit score. Even if your credit score recovers, many lenders pull your full credit history rather than just your credit score. These lenders will see the charge-off and take it into consideration regardless of your credit score.