Let’s dig into charge offs—those confusing little credit gremlins that often get lumped together with collections. While they might seem similar, they’re definitely not the same thing. Let’s break it down in plain English.

What Is a Charge Off?

Think of a charge off as a debt that a creditor has basically given up on collecting. After a certain period of missed payments, they write it off as a loss in their books. But here’s the kicker: just because it’s been “charged off” doesn’t mean it disappears. Nope—you’re still legally responsible for the debt.

And here’s where it can get messy: that charged-off debt can then be sold to a collection agency, which could lead to a second negative mark on your credit report. Double whammy.

Even though charge offs might not always count against your debt-to-income (DTI) ratio, they can still take a serious toll on your credit score.

How to Spot a Charge Off

You’ll usually see the words “charged off” noted right on the credit report—especially if you’re pulling it from a mortgage credit report or even a free credit monitoring site.

Charged off accounts most commonly show up as:

  • Credit cards (from the original creditor)
  • Personal loans
  • Auto loans (not the same as repossessions)
  • Private student loans

To Pay or Not to Pay? That Is the Question…

Let’s walk through the most common types of charge offs and how to approach them.

Charged-Off Credit Cards (Less Than 2 Years Old)

Credit card charge offs are tough. Not only do they hurt your payment history (which makes up 35% of your score), but they also hit your credit utilization (30%). In other words, even if you’re not using the card anymore, it still looks like you maxed it out.

If the account is recent—less than two years old—paying it off could actually help your score by improving your utilization. But before you do anything, remember that tricky DLA (Date of Last Activity). Updating an older account could actually hurt more than help. 

Charged-Off Auto Loans

Quick reminder: charge offs and repossessions are not the same thing. 

A charged-off auto loan usually happens when payments stop—sometimes even unintentionally. We’ve seen cases where someone thought their insurance covered the balance after a totaled car, but it didn’t.

These accounts mainly affect payment history. So here’s the question: if paying it off won’t change your payment history, is it worth it? (Hint: always factor in the DLA.)

Charged-Off Private Student Loans

Private student loans can be charged off (unlike federal loans), and while they don’t directly block someone from buying a home the way delinquent federal loans might, some lenders do require them to be paid before closing—especially if the account is fairly new.

Charged-Off Personal Loans

These are usually installment loans, similar to auto loans. And the same logic applies: will paying it off change your payment history? If not, maybe that money is better used elsewhere. Again—DLA is key!

Bottom Line

Charge offs are their own beast. They come in different forms and affect credit scores in different ways. That’s why understanding the details behind a client’s credit report is so important.

Need help navigating it all?

You don’t have to figure it out alone! If this sounds like something you—or someone you care about—is dealing with, reach out. I’ve got resources, answers, and support ready to go.

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