Your credit report contains information about your borrowing history as well as your unpaid debts. Charged-off debts owed to companies such as banks or telephone service providers may appear on your report alongside details of your student loans or credit cards. Details of charged-off accounts remain on your report for seven years. However, you can take steps to reduce the negative impact of these accounts.

Charge Offs

When you borrow money from a credit card provider or bank, you pay interest on the debt. The lender treats your debt as an asset because your interest payments generate profits. When an account is charged off, it means your lender no longer regards your account as an asset. This usually happens when you've fallen a few months behind on your payments. The account is removed from the firm's active account records and passed onto a debt-collection department. During the charge off process, the firm settles its books by paying off your debt with its own funds. This doesn't mean you're off the hook; it just means the firm no longer regards you as a reliable borrower.

Credit Report

Creditors usually wait about six months before charging off a debt. However, missed payments are also reported to the credit bureaus, and you can expect one of these black marks every time you miss your due date. Both the late payments and the charge off remain on your credit report for seven years. The report details the nature of the debt and the amount you owe. Charge offs have a derogatory effect on your credit score. Your score plummets and serves as a warning to other prospective lenders that you have a poor history when it comes to paying your debts.

Paying Off Debt

You can't expedite the removal of a charge off from your credit report, but you can raise your score if you pay off the debt. Your credit report is updated to show that the charged-off account has been paid in full. This raises your score because it shows that you are trying to get your finances back on track. Some creditors may offer you a settlement arrangement through which you pay only a portion of the debt owed. A settlement may put an end to calls from collection firms, but it won't help your credit score much. When you settle, you failed to repay all the money that you owed.

Time Heals

Your credit score is affected by a number of factors that include past payments, balances owed and the types of credit you use. The scores are weighted so recent activity counts more heavily than older events. For each year that passes, your charged-off account has less effect on your credit score. If you pay your other debts on time, that positive activity further reduces the impact of your past problems. Your score may rise significantly long before the charge off disappears from your credit report.