A charge-off is a debt that is deemed uncollectible by the original creditor and is subsequently written off. Charge-offs are classified as 'bad debts' on the creditor's income statement and are removed from the balance sheet. When a creditor charges-off your account, it's declaring your debt as a loss for the company. The creditor then usually sells or assigns the bad debt to a collection agency.
Typically charge-offs occur after six months of non-payment, but sometimes much sooner. Many people mistakenly think when a debt has been charged-off that it's been canceled by the creditor. This is not true. You are still responsible for paying off the debt. Your creditor will almost always add a negative entry to your credit report and continue to attempt to collect on the debt. Charge-offs remain on your credit report for seven years from the date the account was first reported.
If you pay the debt, it will be updated on your credit report to "Charged-Off Paid" or "Paid Collection". Either is better than a simple "charge-off" status, but are still undesirable and counted as a negative item on your credit report for seven years.
The only way to remove a charge-off from your credit report is to negotiate with the creditor to have it removed after you pay the account in full or dispute the account with the credit bureaus such as Equifax, Trans Union and Experian.
If you decide to negotiate with the creditor, make sure you get their intent to remove the negative mark from your credit report in writing before you settle your debt.
If you decide to dispute the account, you will want to either learn how to repair your credit or hire a credit repair firm to do it for you. Once you have disputed the negative account, the credit bureaus then supposedly contact the creditor. If the account can not be verified by the creditor, it must be removed from your credit report immediately.
