Account Paid in Full vs. Charge-Off

Accounts should be paid in full to avoid damage to your credit score.

Accounts should be paid in full to avoid damage to your credit score.

One of the many important aspects of a credit report is how it lists the status of each account. The status includes what payments were missed, submitted late, and how the account was closed if applicable. The term used to describe the closing process can have an immense report on your overall credit score. A few common terms include account paid in full, charge-off, settled charge-off, and paid charge-offs. Each term is viewed differently by lenders.

Account Paid in Full

Lenders prefer to see this term on your credit report. It means you had an open account with a lender, you owed the lender money, and you paid it back under the terms and conditions of the credit contract. It is commonly seen on accounts such as furniture loans, where a lender agrees to finance the total purchase price of the furniture. When the total amount has been paid with interest, the account status is reported to the credit agencies.

Charge-Off

A charge-off is the opposite of paid in full. It means the lender hasn't received payment for at least 180 days, and the account is in default. The lender, or a third-party collection agency, can still come after this kind of debt. Charge-offs have an extremely negative effect on your credit score. The lender will see you're late on bills and you don't fulfill your obligations.

Settled Charge-Off

Frustrated lenders may turn to a third-party collection agency when an account is in default for more than 180 days. The agency may offer a settlement deal if its collection efforts fail. In a settlement deal, the borrower pays a fraction of the total debt to close the account. This settled charge-off will lower your credit score, but not as drastically as a charge-off. The lender will see the late and partial payments, but will also note you made an effort to satisfy some of your debts.

Paid Charge-Offs

A paid charge-offs is an alternative to a settled charge-off. It's placed on a credit report when the account is paid in full after 180 days of delinquency. It's not all gravy because it stays on a credit report for seven years plus 180 days from the date of the first missed payment. Lenders may give you a break if they see this on your credit report, but they will watch your account closely.

Credit Review

If you've ever been denied credit, it's most likely due to the status of the accounts on your credit report. Contact the three major credit agencies on a yearly basis to request a free credit report. Dispute any discrepancies with the lender and credit reporting agency immediately. All correspondence should be documented in writing.

About the Author

Jennifer Young has worked as a writer, editor and book publisher for professional life coaches and business entrepreneurs since 2007. She has specialized training and experience in project management and procurement, as well as contracting services. Young earned Bachelor of Arts degrees in both history and Japanese studies.

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