Should you pay a charge-off or leave it alone? The clear answer is to pay it as soon as possible, right? After all, you owe the money, and a charge-off is a terrible mark on your credit report. Paying it will improve your credit score, correct?
Not necessarily. While most consumer credit websites will advise you to pay a charge-off as soon as you can, the fact is, in many cases it makes perfect sense not to pay charge-off. In fact, in some cases, paying a charge-off can make your credit score worse.
To understand how paying a charge-off can actually lower your credit score, we must first take a closer look at the FICO scoring model and then examine why paying a charge-off won’t help your credit scores.
Before we get into the details, here’s a quick primer on charge-offs. A charge-off occurs when you fail to pay a credit card balance for an extended period (typically at least 180 days), and the credit card issuer writes off the debt as uncollectible. They report this status to the credit bureaus, and it shows up on your credit reports as a charge-off.
Now, here’s why paying a charge-off might not be the best idea. The most widely used credit scoring model is the FICO 8. And, this model views a charge-off as an event. It doesn’t matter whether you’ve paid the balance or not; FICO 8 simply considers the presence or absence of the charge-off on your credit report. And, once an account has been charged off, much of the credit score damage has already been done.
FICO 8 views the charge-off as a binary event. Either the charge-off is on your report, or it isn’t. It does not factor in the amount of the charge-off balance. As a result, paying a charge-off balance does not help your credit score.
When determining your credit score, FICO considers several categories, including:
- Payment history (35% of the credit score)
- Credit utilization (30% of the credit score)
- Length of credit history (15% of credit score)
- New credit (10% of credit score)
- Type of credit used (10% of credit score)
Under payment history, FICO considers a range of factors, such as:
- Payments made on time
- Payments made late (by 30 days, 60 days, etc.)
- Accounts sent to collections
- Charge-offs
- Bankruptcies
But, when you pay a charge-off, it doesn’t change anything in the FICO scoring model. The charge-off is still listed on your report. You’ve made late payments (or missed payments entirely). This history is preserved, even if you pay the charge-off. The FICO scoring model doesn’t recognize the difference between an unpaid charge-off and a paid charge-off.
As a result, paying a charge-off has little impact on your credit score. In fact, in some cases, paying a charge-off can even hurt your credit score. When you pay a charge-off, you are updating the “date of last activity” on the charge-off. This means that FICO will view the charge-off as a more recent event and weight it more heavily in their scoring model. This could potentially cause your credit score to go down after you’ve paid a charge-off.
How likely is this to occur? The answer depends on various factors, including the number of other charge-offs you have, the overall age of your credit history, and other details about your credit report. However, if you’re considering whether to pay a charge-off, it’s essential to consider that it’s possible your credit score could go down, not up. A credit repair company in Texas analyzed the outcomes of 147 of their clients who paid charge-offs. Here are the results of their analysis:
- 35% of clients did not see any improvement in their credit scores at all (i.e., the improvement was within 5 points).
- Among those who did see improvement, the typical gain was a modest 0 to 15 points.
- 24% of clients actually saw their credit scores decline by 10-30 points.
These results demonstrate that paying a charge-off is not a slam dunk. Sometimes it will help your credit score; sometimes it won’t. Sometimes it will actually make your credit score worse.
In summary, while it might seem counterintuitive, paying a charge-off isn’t always the best thing to do. In some cases, it may make sense not to pay a charge-off, particularly if it’s an old charge-off.
Now let’s look at the 2021 charge-off. As it got older, it became less of a score killer. Pay it in 2025 and the score drops in response. While paying reduced scores by an average of 15 points, the consumers who got charge-offs completely deleted as a result of a dispute or a pay for delete agreement, experienced an average 52-point gain. That’s 3 ½ times the gain of paying the debt. These numbers speak for themselves as to what actually works best.
The Debt Buyer Profit Machine
Four Cents on the Dollar
When a creditor charges off your debt, it doesn’t write it off and walk away. In most cases, it sells the charged-off debt to a third-party debt buyer for pennies on the dollar. What exactly does pennies on the dollar mean?
In 2013, the Federal Trade Commission studied more than 5,000 portfolios consisting of almost 90 million consumer accounts with a total face value of $143 billion. The FTC found that debt buyers paid an average of just four cents per dollar of face value for the accounts they purchased. Newer debts, those less than six months old, brought between seven and 15 cents on the dollar. Older debts went for less than a cent.
A 2017 Consumer Financial Protection Bureau market snapshot showed online debt portfolios changing hands for as little as three-hundredths of a cent per dollar. The debt collector calling you about a $5,000 charge-off may have paid $200 or less for the right to collect it.
Richard Cordray, then-director of the CFPB, described this process in a straightforward way: “When a creditor charges off a debt, it has typically given up trying to collect what it is owed and has instead settled for recovering what it can through the sale of those delinquent debts for pennies on the dollar. Then, the new debt owner may have the right to pursue the consumer for the full amount of the original debt. The difference between the debt’s price and the collection target is where the debt collection industry’s profits are made.”
The Information Deficit
The FTC study also contained this ugly little truth: “Most sale contracts stated that the creditors did not warrant that the information they transferred to buyers was accurate. Debt buyers generally did not receive any information about whether consumers had disputed the debts, and the contracts typically limited debt buyers’ ability to obtain account-level documentation after the sale. When consumers disputed debts, buyers were able to verify only about 51 percent of them.
In other words, half the debts that went into collection had no verification that the consumer actually owed the debt. You may be getting calls from a debt collector demanding that you pay thousands of dollars on a debt it purchased for the price of a fast-food hamburger, without being able to prove that you owe it.
The Hidden Legal Danger of Paying
Despite the credit scoring issue, partial payment of a charged-off account poses a legal risk that few consumers are aware of. In most states, any payment, promise to pay, or written acknowledgment of the debt restarts the statute of limitations, allowing collectors to pursue you in court again for the full remaining balance.
“[The] collector may not be able to win a court judgment against you even if it decides to file a lawsuit against you,” the Federal Trade Commission advises in consumer guidance on its website. “Some debt collectors may still try to sue you for a debt that is past the statute of limitations. If that happens, don’t ignore the lawsuit. If you don’t respond to the lawsuit, you may lose the case by default. Also, if you respond to the lawsuit, make sure to assert your defense that the statute of limitations has expired.”
The FTC also cautions: “In some states, simply paying a portion of an old debt could restart the clock on the statute of limitations allowing a collector to sue you to try to collect the full amount. In other states, making a written promise to pay the debt could restart the clock.”
In most states, any payment restarts the statute of limitations, and in a few states, a written promise to pay the debt also restarts it. The statute of limitations on debts varies by state and the type of debt, but it ranges from 3 to 10 years. After the statute expires, debt collectors may still contact you but cannot sue you for the debt. (Under Regulation F, effective November 30, 2021, debt collectors are barred from suing or threatening to sue on a time-barred debt, but in most states, making a payment, even just one dollar, revives the statute of limitations.)
Portfolio Recovery Associates was hit by the CFPB twice: a 2015 consent order imposed $27 million in refunds and penalties, and in 2023 PRA was ordered to pay an additional $24 million after violating the original order by continuing to collect on unsubstantiated debts and suing on time-barred accounts. Another debt buyer, Encore Capital Group (which operates under the name Midland Credit Management), received a similar treatment.
In 2015, the CFPB entered into a consent order with Encore, which required it to refund up to $42 million to consumers and pay a $10 million civil money penalty. The agency later sued Encore again, resulting in a $15 million civil penalty. In 2018, the attorneys general of 42 states reached a settlement with Encore over its use of robosigning, requiring it to pay another $6 million.
What Regulators Have Said
In both cases, regulators have said that the debt collection process, and the threat of placing a charge-off on a consumer’s credit report, is often used as a means of coercion rather than an accurate reflection of the consumer’s likelihood of repayment.
CFPB director Rohit Chopra has made this point explicitly in discussing debt buyers: “One of the primary ways they monetize it is by threatening to put that debt on the credit report,” he said. “In that sense, the credit reporting system functions more as a tool for debt collectors rather than a tool for lenders to evaluate the likelihood that a consumer will repay.”
His predecessor, Richard Cordray, made a similar point in discussing the practice of robosigning: “Today we are taking action against two companies that took in millions by deceiving consumers and ignoring the law,” he said. “Just like in the mortgage context after the financial crisis, robosigning of credit card debt is reckless and cannot continue. We will continue to take action to protect consumers.”
These are not just the musings of outside critics. They are statements from the directors of the federal agency that oversees both the debt collection industry and the credit reporting system.
What Works Better Than Paying a Charge-Off
Debt Validation and Disputes
The Fair Debt Collection Practices Act (FDCPA) gives consumers the right to demand that a debt collector show proof that they owe a debt. Under FDCPA Section 1692g and the newer Regulation F, you have 30 days from the date you receive a collector’s first notice to dispute the debt in writing. If you dispute the debt during this period, the debt collector must stop collection activities until they provide verification of the debt.
In light of the FTC’s finding that debt buyers verified only about half of debts they were asked to dispute, it may make sense to take advantage of your rights under the FDCPA to demand that the debt collector verify the debt. Data from credit repair companies found that 38% of charge-off accounts it reviewed contained mistakes that could be verified, including incorrect balances, incorrect ownership of the account and information that was too old to legally remain on the report. Once successfully disputed, those accounts were deleted.
Pay-for-Delete Negotiations
Another strategy that can be effective is trying to negotiate a “pay-for-delete” arrangement, in which you agree to pay some or all of what you owe in exchange for the original creditor or collection agency removing the charge-off from your report. Data on success rates for pay-for-delete negotiations is scarce, but the credit repair firm’s data indicates that such negotiations succeed about 31% of the time.
The success rate was higher for collection agencies (42%) than for original creditors (18%), such as big banks. On average, a complete deletion resulted in a 52-point increase in the consumer’s credit score compared with 0 to 15 points for simply paying the debt.
Strategic Patience and Credit Building
For many consumers, the best course of action regarding a charge-off may be to do nothing at all. If your charge-off is already several years old, you may be better off simply waiting for it to be removed from your report rather than taking any of the actions discussed above. Don’t waste time on a charge-off. Eventually, it will age off your report. When it does, it will be automatically deleted.
Under FCRA regulations, charge-offs have to be removed 7 years from the DOFD. This is true regardless of whether it’s paid, unpaid, sold or ignored.
In one case recorded by a credit repair firm, a consumer had a June 2018 charge-off scheduled for automatic deletion in June 2025. Instead of paying it, she waited for that to happen. As soon as it dropped off her report, her credit score increased 67 points.
To put that in perspective, paying the charge-off may have helped her score 8-15 points under FICO 8. While you wait for an older charge-off to fall off, focus on establishing positive credit. According to the credit repair firm’s data, getting credit utilization under 30% raised the average score 28 points. Adding new positive accounts raised it an average of 34 points over six months. In either case, you stand to gain a lot more than you would by paying a charge-off.
Summary
The charge-off payment system is rigged against consumers. It’s designed to benefit debt collectors. Debt buyers have paid 4 cents on the dollar for accounts and try to convince consumers to pay the full amount. They often exaggerate the impact payment will have on your credit score.
Under FICO 8, the scoring difference between a paid and unpaid charge-off is minimal. Paying it can even lower your credit score if it reactivates an old negative mark. In most states, it can also reset the statute of limitations clock. Based on the data, you have a clear picture of your options.
First, validate the debt. Half of all disputed debts can’t be verified.
Next, dispute the charge-off if it’s reported in error. Over one-third of charge-off accounts contain errors.
If you have a valid reason to pay it, negotiate its removal. If it’s going to come off within a couple of years, consider just waiting.
How FightCollections.com Can Help
We’ve dealt with these situations before at FightCollections.com. We know how credit scoring works. We know your rights under the FDCPA and FCRA. And we know how debt collectors misbehave because regulators have been documenting their bad behavior for years. We can dispute errors and unverifiable accounts on your behalf. We can help you create a plan that works.
If you have charge-offs on your credit report, don’t think you have to pay them. Not before you’ve talked to FightCollections.com. Sign up for a free consultation today and learn your rights.
