When you are delinquent on a debt (typically after at least six months of non-payment), a creditor may declare your debt as a charge-off. A charge-off can significantly lower your credit score and remain on your credit report for seven years. Though a charge-off is assumed to be noncollectable, you are still expected to pay it.
Lawsuits
While paying your charge-off won't guarantee that your credit score will improve, failure to pay your charge-off could result in a lawsuit. It's always a good idea to pay off any charge-offs.
Credit Report
Paying off a charge-off will not remove it from your credit report, though it will reflect as having been paid. A paid charge-off may reflect better than an unpaid charge-off.
Removing a Charge-off
The only way to make sure that paying your charge-off will improve your credit score is by having it removed from your credit report. Before paying your charge-off, contact the creditor and request (in writing) that he remove the charge-off once it's paid. He may not agree, however it doesn't hurt to try. Keep records of your correspondence.
Misconceptions
Making payments on a charge-off won't reset the 7-year clock. The 7-year time limit is based on the original delinquency date, regardless of any future payments.
Considerations
If you have more than one charge-off, focus on the most recent charge-off first since older charge-offs will eventually fall off of your report (though you should still pay those when possible).
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