Difference Between a Paid in Full Account and a Charge-Off

When you receive your credit report, you may find certain unfamiliar terms. The terms "paid in full" and "charged-off" may appear in relation to a debt account, such as a credit card bill or a loan. They signify the status of your debt account and may affect your ability to obtain credit.

Timing

Your lender informs the credit reporting agencies when you have paid off your debt so the account appears as having been paid in full on your report. On the other hand, your lender stops taking account of a debt if you have not paid it off 120 to 180 days after the due date. The lender then reports it as having been charged-off. The lender does this to keep bad debts off the company's financial statements and avoid overestimating its assets.

Payment

If you have completely paid off the debt related to an account, your credit report should show it as having been paid in full. On the other hand, an account may have the charged-off status whether you have paid for it or not. The credit report may differentiate between a paid charge-off or an unpaid charge-off. The paid charge-off status appears if you pay for the debt after the lender reports it as having been charged off. If you negotiate a partial payment of the debt, the lender may consider it a settled charge-off.

Collections

Although the lender has considered your debt as bad debt and removed it from the financial statements, the lender may still attempt to collect payment from you. The lender may have an in-house collection department that contacts you to request payment. The lender may also choose to sell your debt to a collection agency for less than your owed balance. The collection agency then contacts you for payment in the hopes of making a profit.

Effects on Credit

Having the charge-off status on your credit report may lead to inability to get credit because future lenders see it as a sign of a risky borrower. To remove it, you may contact the creditor and pay off the debt. Request that the lender update your credit report with the new information. Depending on the case, the credit report may then show a "paid charge-off" or "paid in full" status. If you don't do anything, the charge-off will disappear in seven years.