A charge-off has a significant negative impact on your credit score. When a lender deems an account as uncollectible, they charge off the debt and report it to the credit bureaus. This indicates that the borrower has defaulted on the debt and is not likely to repay it. As a result, your credit score can decrease by a significant amount.
Charge-offs remain on your credit report for up to seven years from the date of the first missed payment, even if you eventually repay the debt. The more recent the charge-off, the more it will negatively impact your credit score. Over time, its impact lessens, but it can still affect your ability to obtain credit or get favorable interest rates on loans.
Having a charge-off on your credit report indicates to lenders that you may not be a reliable borrower, making them cautious about extending credit to you. It can also make it challenging to secure loans or credit cards in the future, and if you do, you may be offered less favorable terms or higher interest rates.
To minimize the negative impact of a charge-off on your credit score, you can work towards resolving the debt by negotiating with the lender or collection agency. Once it is paid off, the charge-off status will still show on your credit report but will be marked as "Paid" or "Settled," which is slightly less damaging than an unpaid charge-off.