Paid a charged-off debt; now what?

Brady Porche
Managing Editor
Personal finance journalist with an eye for industry news

 Paid a charged-off debt — now what? DNY59/iStock /Getty Images Plus/Getty Images


 Paid a charged-off debt — now what? DNY59/iStock /Getty Images Plus/Getty Images


You finally did it. You eliminated the debt that has hung over your head like a gathering storm for the past several months. Those unpleasant collector phone calls? They’ll soon be a distant memory.

But is the debt really gone? You need to find out for sure.

A few months go by and, with renewed confidence, you apply for a home loan. One day your prospective lender calls you to deliver the bad new news — your credit report still shows an unpaid debt. “Sorry,” he says, “but we can’t offer you a loan at this time.” Someone else is going to get that great house you had your heart set on simply because your credit report contains outdated information.

What happened? Weren’t you out of the woods when you made the payment? Not necessarily.

What is a charge-off, and how do you get rid of it?
Few of us ever want to be guilty of not paying a debt, but in some cases it’s hard to avoid. A sudden layoff or a medical emergency can quickly render you unable to pay credit card bills or other debts on time. Regardless of the reason, a debt that goes unpaid for a lengthy amount of time ultimately becomes a charge-off.

“Charge-off” is an accounting term for an unpaid debt that a bank or credit card issuer removes from its books. Typically, a creditor will either sell a debt that is more than 180 days overdue to a collection agency or employ an agency to help collect payment. Missed payments are especially damaging to your credit score, but paying a charge-off in full can help it recover more quickly over time.

“The past due status that was reported when it occurred will remain on the report for seven years per Fair Credit Reporting Act requirements,” Kristine Snyder, senior public relations manager at Experian, said. “Because of the paid status, it will count less and the impact will lessen as time goes by.”

Improving your credit score, however, should not be your primary goal in paying off an old debt. Marty Lynch, compliance manager and director of education at Cambridge Credit Counseling Corp., said the immediate value is your improved perception as a potential borrower in the eyes of prospective lenders.

“That kind of perception is probably more significant than any kind of movement in your score,” Lynch said.

While there are other options for dealing with a charge-off, paying it in full is the best first step on the road to recovery.

Communication breakdown
Unfortunately, it’s not enough to just pay the charge-off and forget about it. There are some cases in which the information about the full payment doesn’t get communicated to the credit reporting agencies. Todd Christensen, director of education at the National Financial Education Center, said that while most creditors report payments on charge-offs, there are occasions when they don’t.

The idea that creditors don’t always update charge-offs to “paid in full” on credit reports can be unsettling to consumers, but the federal government is on the case. The Fair Credit Reporting Act requires entities that regularly furnish information to consumer reporting agencies to promptly update incomplete or inaccurate information. The Consumer Financial Protection Bureau said in a March report it had found some instances of furnishers not updating reporting agencies on paid-in-full charge-offs and instructed them to do so.

What to do after paying down a charge-off
You can’t control the actions of a bank or a collection agency, but there are steps you can take to safeguard yourself from lingering problems after you’ve paid off a debt in collections. 

  • Check your credit report. Request a copy of your credit report from one of the major credit bureaus about a month or two after paying in full to ensure the balance has been updated to zero. Consumers are entitled to one free credit report per year, and they can be obtained at
  • If the charge-off is still there, file a dispute. If the credit report continues to show a balance, the consumer should initiate a dispute with the credit bureau that shows the error, Christensen said.
  • Be able to prove that you paid. Lynch strongly recommends holding on to the first statement that shows you paid off your balance. Or, be sure to have access to a copy of the payment made, either through your bank or a canceled check. “You want to make copies of that and keep them in a safe place,” he said. “Proof that a balance is paid to zero is gold.”
  • Bring your most recent credit report when applying for a loan. You can save yourself a great deal of pain by allowing a prospective lender to glance at your credit report before you even apply for the loan. The lender can then let you know the likelihood of getting the loan based on what’s in your report. “If I have only recently paid off a collector, I want to point out that while I have some past credit issues, I have also taken care of them,” Lynch said.

There are also preventive measures that can be taken to head off any further action on a debt that is in the process of being paid. Christensen recommends requesting from the creditor a statement that it will no longer attempt to collect on the account or turn it over to a collection agency. Although not typical, a debtor can be in for surprises after a collection agency has assumed a debt.  

“I have heard of consumers paying what they thought was the full balance only to find that there were additional fees that the collection agency had added, leaving an additional balance,” Christensen said. “To guard against the bad apples in the collection industry, documentation is always a good idea.”

See related: What is a charge-off? How does it affect your credit?, Pay medical bill before debt goes into collections, Unpaid fees from canceled card can end up in collection 

Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.

Updated: 03-23-2019