What Is a Charged Off Account?

On your credit report is a section for potentially negative accounts, and this is where you will find any charged off accounts, also called charge-offs. A charge-off is one of the most damaging marks you can have on your credit report. According to Steven Bucci, Bankrate debt adviser, a charge-off on your credit report is the No. 1 reason for being denied credit.

Charged Off Account

An account usually is charged off after 180 days, or six months, of missed payments. After that period, the company considers the money you owe a "loss." The company can claim this money as a loss on its tax return, according to Bankrate.

Do I Still Have to Pay a Charged Off Account?

You are still liable for a charged off account. After an account is charged off, it typically is sent to a collection agency or to a collections department within the company. The collection agency will persistently try to collect this debt from you. Depending on the size and type of debt, the collection agency may require full payment of the debt, agree to take a portion of the debt or allow you to make payments to settle your charged off account, according to Bankrate.

How Long Does a Charge-Off Stay on My Credit Report if I Don't Pay?

A charge-off remains on your credit report for seven years. The seven years does not begin when you pay the debt in full; it begins when the account was charged off. Even if the debt is sold to a collection agency, the time period does not reset upon the sale of the debt, according to Maxine Sweet, public educator for Experian. For example, if you stopped making your personal loan payments in January 2010 and the account was charged off in July 2010, the charge-off will be removed from your credit report in July 2017, according to Bankrate.

What Happens if I Pay My Charged Off Account?

If you pay your account in full, it will show up on your credit report as a "paid charge-off." If the collection agency accepts partial payment, your report will show a "settled charge-off," which hurts your credit rating more than the "paid charge-off" designation. You can contact the creditor and request that it report the debt as "paid as agreed" in exchange for full payment, according to Bankrate. Any of these options is better than nonpayment, as an unpaid charge-off severely damages your credit and your ability to obtain future credit.