Charge-Off vs. Collection: What’s the Difference?
Why one unpaid card can show up twice on your report, what each line should say about the balance, whether to pay, settle or ask for deletion, when both entries come off, and when forgiven debt becomes taxable.
A charge-off and a collection are two different events that often happen to the same debt. A charge-off is the original creditor’s accounting decision to write the account off as a loss. A collection account is a separate entry reported by a collection agency or debt buyer that is now trying to collect. Neither one cancels the debt. This page explains how each is reported and what your options are, using the federal banking agencies’ policy, the Fair Credit Reporting Act, the bureaus, FICO and the IRS. Everything was checked on October 22, 2026.
What a charge-off is
For banks, the timing is set by the federal banking agencies’ Uniform Retail Credit Classification and Account Management Policy (implemented in OCC Bulletin 2000-20, June 20, 2000). It says open-end credit, such as a credit card, should be charged off when it is 180 days past due, and closed-end loans, such as a personal or auto loan, when they are 120 days past due. Experian notes that creditors can charge off sooner.
| Account type | Charge-off point under the federal policy | Example: first missed due date March 1 |
|---|---|---|
| Credit card or other revolving line | 180 days past due | About late August |
| Installment loan (personal, auto) | 120 days past due | About late June |
Source: OCC Bulletin 2000-20, “Uniform Retail Credit Classification and Account Management Policy: Policy Implementation,” checked October 22, 2026. The policy applies to banks; other lenders may use their own schedules.
A charge-off is a write-off on the lender’s books, not forgiveness. Experian says the debt is still owed after a charge-off and can be pursued by the creditor or a collection agency. The account is closed to new charges, and the months of missed payments before the charge-off are usually reported as late payments on the same account. See late payments on your credit report.
How both can appear
After the charge-off, one of three things usually happens: the creditor keeps the account and collects in-house, it places the account with a collection agency, or it sells the debt to a debt buyer. When a collector or buyer reports the debt, Experian says a new collection account appears on your report and the balance on the original charged-off account changes to zero. You then see two entries for one debt:
| Original creditor line | Collection line | |
|---|---|---|
| Reported by | The bank or lender you borrowed from | The collection agency or debt buyer |
| Status | Charged off | Collection |
| Balance after a sale or transfer | $0 | The amount the collector says you owe |
| Removal date | Tied to the original delinquency | Tied to the same original delinquency |
Balance behavior per Experian, “What Is a Charge-Off?” (May 29, 2024); removal timing per 15 U.S.C. § 1681c(c). Checked October 22, 2026.
Check for double counting. Say you owed $2,400 on a card when it was charged off and the bank sold it. Correct reporting is $0 on the bank’s line and $2,400 (or whatever the buyer claims, including any lawful interest) on the collector’s line. If both lines show $2,400, your report says you owe $4,800 on one debt. That is inaccurate, and you can dispute the original creditor’s balance. See how to dispute your credit report.
If the original creditor keeps the debt and never sells it, there may be no separate collection line at all; the charged-off account can keep showing the unpaid balance. Debts can also be resold, so you may see a collection line from one company replaced by another. Only the company that currently owns or services the debt should show a balance.
When both come off
The Fair Credit Reporting Act limits accounts placed for collection or charged to profit and loss to seven years (§ 1681c(a)(4)). Section 1681c(c) says when that seven years starts: 180 days after the start of the delinquency that led to the collection or charge-off. That date belongs to the original account, so selling the debt, transferring it to a new collector, or paying it does not restart the reporting clock.
Worked example. You miss the March 1, 2024 payment on a card and never catch up. The delinquency began March 1, 2024. Under the statute, the seven-year period begins 180 days later, about August 28, 2024, so the outer limit for both the charge-off and any collection line is about August 2031. Experian says it counts the seven years from the original delinquency date, which would be about March 2031. A collection line that shows a later delinquency date than the original account is worth disputing. Try the removal date calculator.
The reporting limit is not the same as the deadline for suing you. The CFPB says most states set a statute of limitations of three to six years, the start date varies by state, and in some circumstances a partial payment or acknowledging the debt may restart it. A debt can be too old to sue on and still be on your report, or the reverse. Before paying an old debt, read debt collection rights.
Pay, settle or pay-for-delete
| Option | What the report shows afterward | What it does to scores |
|---|---|---|
| Pay in full | Experian says the status updates to paid; the entry stays until its removal date | FICO Score 9 ignores paid collections; a paid charge-off is still a derogatory entry, and the late payments before it still count |
| Settle for less | The debt is resolved for less than the full balance; the entry stays until its removal date | Still negative; the canceled part may be taxable (below) |
| Pay-for-delete | If the collector agrees and follows through, its line is removed | Removes that collection line only; the original creditor’s charge-off and late marks are separate and stay |
| Do nothing | Entries stay until the removal date; collection or a lawsuit can continue while the debt is within the statute of limitations | Both entries keep counting until they come off; FICO 9’s paid-collection rule does not help an unpaid one |
FICO, “Delivering What Customers Asked for in FICO Score 9,” November 7, 2014; Experian, “What Is a Charge-Off?”; checked October 22, 2026.
Some realities worth knowing before you negotiate:
- Which model the lender uses matters. FICO says FICO Score 9 ignores paid collection accounts, but that only helps if a lender uses that version. FICO also says the late payments on the original account still count in FICO 9; only the paid third-party collection is ignored.
- Paid medical collections are already gone. The three bureaus say they removed fully paid medical collections from credit reports as of July 1, 2022, removed medical collections with an initial balance under $500 as of April 2023, and now wait one year before an unpaid medical collection appears.
- Pay-for-delete is a request, not a right. No law requires a collector to agree. If one does, get the promise in writing before you pay, and know that deleting the collection line does not touch the original creditor’s charge-off. The original creditor may agree to a goodwill adjustment only at its own discretion. More detail is in how to remove collections.
- Debt settlement companies cannot charge first. The FTC says a debt settlement company can’t collect its fees before it settles your debt, that programs can be risky and hurt your credit, and that the savings could be taxable.
Forgiven debt and taxes
The IRS says canceled debt is generally taxable income in the year it is canceled. A lender that is an “applicable entity” must file Form 1099-C for each person whose canceled debt is $600 or more. The IRS list of applicable entities includes financial institutions, credit unions, certain federal agencies, and any organization whose significant business is lending money, such as a finance company or credit card company. Identifiable events that trigger the form include a discharge in bankruptcy, an agreement to cancel the debt for less than full payment, and the creditor’s decision or defined policy to stop collecting.
Worked example. A card issuer agrees to accept $2,000 to settle a $5,000 balance. The $3,000 that is forgiven is above $600, so you can expect a Form 1099-C for $3,000. The IRS says you must report the correct taxable amount even if the form is wrong.
Canceled debt is not always taxable. The IRS excludes debt canceled in a Title 11 bankruptcy case and debt canceled while you were insolvent, to the extent you were insolvent (your debts were more than the value of your assets). If you claim an exclusion you generally report it on Form 982 and attach it to your return. Ask a tax preparer how this applies to you; it depends on your full finances that year.
FAQ
Is a charge-off the same as a collection?
No. A charge-off is the original creditor writing the account off as a loss on its books. A collection account is a separate entry from a collection agency or debt buyer trying to collect. One debt can produce both, and neither one cancels what you owe.
When does a credit card get charged off?
Under the federal banking agencies' retail credit policy, banks should charge off open-end accounts such as credit cards at 180 days past due, and closed-end installment loans at 120 days past due. A creditor can charge off earlier.
Should both the charge-off and the collection show a balance?
No. Experian says that once a collector reports the debt, the balance on the original charged-off account changes to zero. If both lines show the full amount, the report counts the debt twice and you can dispute it.
Does paying a collection restart the seven-year clock?
No. The Fair Credit Reporting Act ties the seven-year reporting period to the start of the original delinquency, so paying, settling or the debt being sold does not change the removal date. A payment can, in some states, restart the separate statute of limitations for being sued.
Will I owe taxes if I settle a debt?
Possibly. The IRS treats canceled debt as income unless an exclusion applies, such as bankruptcy or insolvency. Lenders that are applicable entities must file Form 1099-C when $600 or more is canceled.
Sources
Only primary sources. Every figure above comes from one of these pages, checked October 22, 2026.
- OCC Bulletin 2000-20, “Uniform Retail Credit Classification and Account Management Policy: Policy Implementation,” June 20, 2000 — occ.treas.gov. 180-day open-end and 120-day closed-end charge-off points.
- 15 U.S.C. § 1681c — law.cornell.edu/uscode/text/15/1681c. Seven-year limit for collection and charged-off accounts and when it begins.
- Experian, “What Is a Charge-Off?” May 29, 2024 — experian.com. Debt still owed, zero balance on the original account once a collector reports, paid charge-offs still derogatory.
- Experian, “Closed Accounts and Your Credit History,” March 31, 2020 — experian.com. Seven years counted from the original delinquency date.
- FICO, “Delivering What Customers Asked for in FICO Score 9,” November 7, 2014 — fico.com. Paid collections ignored; original late payments still considered.
- Equifax, Experian and TransUnion joint release, “Equifax, Experian and TransUnion Remove Medical Collections Debt Under $500 From U.S. Credit Reports,” April 11, 2023 — newsroom.transunion.com.
- CFPB, “Can debt collectors collect a debt that’s several years old?” last reviewed December 9, 2024 — consumerfinance.gov. Statutes of limitations and restarting them.
- FTC, “How To Get Out of Debt,” December 2025 — consumer.ftc.gov. Debt settlement fee rule, risks and taxes.
- IRS, Topic No. 431, Canceled Debt – Is It Taxable or Not? last reviewed September 24, 2026 — irs.gov/taxtopics/tc431. Taxability, bankruptcy and insolvency exclusions, Form 982.
- IRS, Instructions for Forms 1099-A and 1099-C (Rev. April 2025) — irs.gov/instructions/i1099ac. $600 filing threshold, applicable entities, identifiable events.
Educational information, not legal, tax or financial advice. Debt and tax outcomes depend on your state and your full finances. If a rule here no longer matches its source, tell us. · Advertiser disclosure