What is a charge-off?

Woman checking auto financing paperwork

A charge-off is a status on your credit report that indicates a creditor, after trying and failing to get you to make good on a debt, has closed your account. It is considered a derogatory entry in your credit file – a serious negative event – and it can adversely affect your credit scores and your ability to borrow additional funds.

What does a charge-off mean on your credit report?

Creditors typically charge off accounts after they’ve been delinquent (having not received any scheduled payments) for a defined period of time, depending on the account type.

Auto loans are considered closed-end retail loans because they are issued for a specific amount of money that is repaid in installments on a set schedule. After the first month’s delinquency on an auto loan, the account entry will move from the “Accounts in Good Standing” section of your credit report to a section titled “Negative Items” or “Negative Accounts.” Its entry will indicate the outstanding balance on the account and how long it has gone unpaid in 30-day increments up to 120 days.

With a closed-end retail loan, if the creditor decides after 120 days to charge off the account, its entry and the outstanding balance will still appear on your credit report, but it will be noted as charged off.

Charge-off account – servicing vs. selling debt to a collection agency

If the creditor continues to service the charged-off account, they will continue to report the status as charged off and the balance owed. If the creditor later sells the debt to a collection agency, the balance due on the charged-off account will change to zero for the debt seller, but the charged-off account will remain on the credit report for seven years from the date the account became delinquent.

The debt buyer will report the account with the balance owed and the charge-off status. The debt once owed to the creditor is now owed to the agency, and any effort to settle the debt will have to be arranged through them.

Once a charge-off occurs, there’s nothing you can do to remove it unless you can prove the entry is inaccurate.

Are you still responsible for paying an account that is charged off?

A charge-off does not mean your debt is forgiven. You are still legally responsible for repaying the outstanding amount.

As long as the account entry is designated as a charge-off and displays an outstanding balance, you can contact the creditor or debt buyer (if applicable) to make the payment. If you are still making payments, it doesn’t remove the previous charge-off from your credit report. The outstanding balance on a charge-off account is still your debt and you are legally responsible to pay it to the original creditor or the debt collection agency that buys the debt.

Furthermore, lenders who see unpaid charge-offs or collections may question your willingness and ability to repay future debts. Some will likely consider any charge-off grounds for declining a credit application, but some lenders will view paid charge-offs more favorably than unpaid accounts.

If I pay the balance on my charged-off account, will the charge-off still be reported?

Once the charge-off balance is paid, the account will report as “account paid in full, was a charge-off.” A charge-off stays on your credit report for seven years after the date the account first went delinquent.

Paid charge-offs are still considered derogatory entries on your credit report, but some lenders may view them as less negative than unpaid charge-offs since the credit score companies include amount owed in their scoring models.

How does a charge-off affect your credit score?

Late and missed payments hurt your credit scores more than any other single factor, and your scores suffer more every month a bill remains unpaid. A payment that’s 30 days late hurts your score pretty significantly, and the damage gets worse if the bill remains unpaid after 60 days, 90 days and so on.

A charge-off will lower your credit score more. As with any negative entry on your credit report, the exact number of points you’ll lose depends on the scoring system used (FICO score or VantageScore, for instance), what your score was before the entry appeared and how many other negative entries already appear on your credit report. To obtain more information on what impacts your credit score, please visit:

You should do your best to satisfy all debts you owe. The negative impact to your scores will ease over time and credit scores will slowly recover over the span of several years.

How to dispute a charge-off

If your credit report contains an inaccurate listing of a charge-off account, or if a legitimate charge-off entry remains on your credit report for more than seven years after the account first went delinquent, you can contact your lender or the credit bureau to dispute the entry. Once you’ve provided necessary documentation, the bureau will correct the entry if it was reported inaccurately and notify the other credit bureaus (Experian, Equifax and TransUnion) to correct their records as well.

If you would like to dispute a charge-off entry or another entry on your credit report related to your auto loan with Santander Consumer USA, please send the following detailed information regarding your dispute:

  • Seven- or 10-digit account number
  • Name and address of the contractual customer(s)
  • Full vehicle identification number (VIN) on loan corresponding to credit dispute
  • Your Social Security number
  • Specific details to support your dispute
  • Provide start and end dates of your dispute
  • Copy of credit bureau report including your dispute
  • Evidence to support your dispute (as applicable)

Send the above information to:

Santander Consumer USA
Attn: CBR Dept.
P.O. Box 961211
Fort Worth, TX 76161

The best way to handle charge-off accounts is to pay your bills on time every month and avoid getting them in the first place. But if you get a charge-off on your credit report, it’ll likely take several years for your credit report to fully recover. You can use that time to work on improving your credit score in other ways. Be patient and persistent, and your credit score should improve.

Visit our Help and Support page to view frequently asked questions about credit reporting and other topics. To learn more about improving your financial health, browse the resources across our Learning Center.

Used, in part, with permission from Experian.

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