Collections vs. Charge-Offs: What’s the Difference?
If you’re trying to clean up your credit report, you’ve probably come across two terms that sound similar but mean very different things: collections and charge-offs. Both indicate serious payment issues, and both hurt your credit but they happen at different stages of the debt lifecycle and affect your score in distinct ways.
Understanding the difference between collections and charge-offs is key to knowing what you’re up against and how to recover faster. Let’s break it down.
What Is a Charge-Off?
A charge-off happens when a creditor like a bank, credit card issuer, or lender decides that your unpaid debt is unlikely to be collected. This typically occurs after about 180 days (six months) of missed payments.
At that point, the creditor “charges off” the account, writing it off as a loss for their books. But that doesn’t mean you’re off the hook — the debt still exists, and you’re still legally responsible for paying it.
Key facts:
- Charge-offs stay on your credit report for 7 years from the first missed payment
- They can significantly drop your FICO and VantageScore credit scores
- The original creditor may still try to collect or may sell the debt to a third-party collection agency
Example:
You miss six months of payments on your Capital One card. Capital One charges off the account but later sells the $2,500 balance to a collection agency this could result in both a charge-off and a collection entry on your report.
What Is a Collection Account?
A collection account is created when a debt often after being charged off is sent or sold to a collection agency. These agencies specialize in chasing down unpaid debts, and they’ll contact you (sometimes aggressively) to get their money.
Collections can stem from:
- Credit card accounts
- Personal loans
- Medical bills
- Utility bills
- Even gym memberships or parking tickets
Key facts:
- Collections also stay on your credit report for 7 years
- They may come from the original creditor or a third-party agency
- Newer scoring models (like FICO 9 and VantageScore 4.0) ignore paid medical collections
Example:
You forget to pay a $300 hospital bill. Six months later, you get a call from XYZ Collections. That unpaid bill is now showing as a collection account on your credit report.
How They Impact Your Credit Score Differently
Both charge-offs and collections damage your credit score, but in slightly different ways.
| Impact Area | Charge-Off | Collection |
|---|---|---|
| When It Hits | After 180+ days of non-payment | After being sent or sold to a collection agency |
| Reported By | Original creditor | Collection agency |
| Affects Credit Score? | Yes, significantly | Yes, especially if unpaid |
| Score Recovery (if paid) | Still lingers but may help slightly | FICO 9 and VantageScore 4.0 ignore paid collections |
| Can Both Appear? | Yes, one account may show both a charge-off and a collection | Often follows a charge-off |
Important:
In older FICO versions (used by many lenders in 2025), paid collections still hurt your score, even if you’ve settled. But newer models are more forgiving a trend that benefits those tackling old debts.
Which Is Worse: Charge-Off or Collection?
From a credit score perspective, both are bad, but charge-offs may be slightly more damaging because they come from the original lender and suggest a total failure to repay a debt. If a collection appears in addition to the charge-off, the damage can be compounded.
But there’s nuance here:
- A paid collection might hurt less than an unpaid charge-off
- A recent collection is worse than an old one
- Medical collections are treated more leniently than credit card or personal loan collections
How to Resolve a Charge-Off
To handle a charge-off effectively:
- Verify the details on your credit report
- Dispute any errors with the credit bureaus
- Negotiate a settlement or a pay-for-delete agreement
- Request updated reporting (e.g., “Paid in full”) if they won’t delete it
- Document everything and get agreements in writing
How to Handle a Collection
Here’s a step-by-step approach:
- Confirm the debt is valid: Get a debt validation letter within 30 days of first contact
- Check your credit reports: Note how and where it’s reported
- Dispute inaccurate entries: Use your right under the Fair Debt Collection Practices Act (FDCPA)
- Negotiate payment: Offer a settlement or ask for a pay-for-delete (get it in writing)
- Monitor updates: It can take 30–60 days to reflect on your credit
Medical Debt Tip:
In 2023, the three major bureaus stopped reporting medical collections under $500 and in 2025, most medical collections must be at least a year old before appearing. That’s good news for those dealing with healthcare bills.
Can You Remove Charge-Offs or Collections?
Sometimes but only in certain situations:
- Disputes work if the entry is incorrect or can’t be verified
- Pay-for-delete might work for collections (less likely for charge-offs)
- Goodwill letters can help remove paid accounts if you had a hardship
- Waiting 7 years is the guaranteed (but slow) solution
Hiring a credit repair service can help if you’re overwhelmed, but many of these steps can be done on your own. Just be cautious about scams.
Key Takeaways
- Charge-offs are unpaid debts written off by the original creditor they signal serious delinquency
- Collections are debts handed over to agencies for recovery they’re often more aggressive
- Both stay on your credit report for 7 years, but newer scoring models treat paid collections more leniently
- Resolving either one starts with validation, negotiation, and persistence
The road to recovery doesn’t stop with resolving past debts you’ll need to actively rebuild your credit too.
Looking to rebuild faster? Check out our list of the Best Secured Credit Cards to Rebuild Credit in 2025 — and start getting back on track today.
