How long does it take for a paid off loan to show on your credit report

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Highlights:

• A charge-off means a lender or creditor has written the account off as a loss, and the account is closed to future charges
• It may be sold to a debt buyer or transferred to a collection agency
• You are still legally obligated to pay the debt

If you’ve fallen behind on payments for one of your credit accounts, you may be notified – or see on your credit reports – that the debt has been “charged off.” 

But what does that mean, exactly, and how can it impact credit reports  and credit scores? Here are some frequently asked questions regarding charge-offs:

What does “charge-off” mean?  Simply put, a charge-off means the lender or creditor has written the account off as a loss, and the account is closed to future charges. It may be sold to a debt buyer or transferred to a collection agency.

So does that mean I don’t owe the debt any longer?  No. You’re still legally obligated to pay the debt. If the debt is sold to a debt buyer or transferred to a collection agency, it may appear twice on credit reports – once from the original creditor and once from the collection agency or debt buyer.

If the debt is sold or transferred, you may end up making payments directly to the collection agency or debt buyer, not the original lender.

When do charge-offs happen?  It depends on the repayment terms and the type of account, but the time frame is generally between 120 and 180 days after you become delinquent. Creditors will likely first send letters or call to remind you of the past-due amount before the account is transferred to a collection agency or sold to a debt buyer. 

Can my account be charged off even if I’ve been making payments?  Yes, your account may be charged off if your payments haven’t met the monthly minimum and your account becomes delinquent. Your account may also be charged off if you file for bankruptcy.

How might this affect credit reports and credit scores?  If the original lender and the collection agency or debt buyer reports to any of the three nationwide credit bureaus, the status of the account will be updated to a charge-off status. Because a charge-off occurs when a financial commitment hasn’t been completely satisfied, it will likely show up on credit reports along with those late or missed payments. And because credit scores are calculated using information from credit reports, your credit scores may be impacted. The charge-off will only appear on credit reports from credit bureaus the lender or creditor reports to -- some may report to only two, one or none at all.

How long will the charge-off stay on credit reports?  Similar to late payments and other information on your credit reports that’s considered negative, a charged-off account will remain on credit reports up to seven years from the date of the first missed or late payment on the charged-off account. 

If I pay the debt, will it remain on credit reports? Yes, though it will show as a paid charge-off or paid collection when reported as paid by the lender, the collection agency or the debt buyer. If you pay the charge-off or collection before the seven-year period is up, it remains on credit reports but may have less of a negative impact on credit scores, depending on the credit scoring model that’s used.

If you’re facing a charged-off account, consider contacting the original lender or the collection agency to see if it’s possible to negotiate a payment plan or settlement.  A payment plan or settlement may also impact your credit scores, though it may have less of an impact on credit scores than a charge-off, depending on the credit scoring model.
 

Paying off debt removes a bill from your budget, but that paid-off loan or closed credit card can stay on your credit report for years.

That’s great news if you paid on time: That positive payment information can continue to help your credit score.

But if you didn’t, your credit missteps can linger.

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Why do closed accounts stay on your credit report?

A credit report is a detailed document listing information about how you've handled borrowed money. You have a credit report from each of the three major credit bureaus — Equifax, Experian and TransUnion — which get data about your accounts from lenders and compile it. That data is then used to calculate your credit scores.

Your reports list both positive and negative information about how you manage credit. For instance, if you always pay your car loan on time, it will be listed as in good standing. On the other hand, if you’ve paid late, that will be noted.

Including both open and closed accounts gives more data about your use of credit, which helps credit scores more accurately portray what type of customer you are.

It’s a common misconception that your credit report includes only information about your active accounts. Unless you have a very limited credit history, your credit report is probably full of data about closed accounts, like loans and credit cards you paid off years ago.

How long do closed accounts stay on your credit report?

How long a closed account will stay on your credit report depends on how you handled the payments.

Accounts in good standing — that is, you paid as agreed month after month — can remain on your credit report for up to 10 years. That's good news. Payment history is the most influential of the factors that affect your credit scores.

If you defaulted or had late payments on an account, it must come off your credit report after 7½ years from the date the account was first reported delinquent, according to federal law. Most other negative information comes off after seven years. The only derogatory mark that can stick around longer is a Chapter 7 bankruptcy, which will remain on your credit report for up to 10 years.

Should I try to get rid of closed accounts on my credit report?

Don't try to remove a paid-off mortgage, car loan, credit card or other accounts from your credit report if they show a positive payment record. That good record will continue to help your credit scores.

If you have negative marks on the account, however, you want it off as soon as possible. You can use AnnualCreditReport.com to get free reports from the bureaus every 12 months to verify negative information has been removed as required by law. If a negative mark is lingering, you can file a dispute.

Many credit scoring models now exclude paid-up collections accounts. But because some lenders still use older scoring models, you may want to try removing collections from your reports.

What does 'account closed' mean on a credit report?

If you have closed credit card accounts, your credit report will indicate whether the account was closed by you or by the account issuer. You might close an account because of fees or poor service. The account issuer might close one because of default, late payments or inactivity.

If closing a credit card account does sway your score, it's most likely because of something called utilization. Credit utilization is how much of your available credit limits you're using, and it plays a big role in scoring. Closing a card removes its credit limit, so any balances you have outstanding now look bigger in comparison to the lower overall available credit.

Paying off a loan or closing a credit card could also have a small effect on your score if it lowers the average age of your accounts or gives you a slimmer mix of credit types.

How long will a paid-off account take to show up on your report?

It can take one or two billing cycles for a loan or credit card to appear as closed or paid off. That’s because lenders typically report monthly. Once it has been reported, it can be reflected in your credit score.

You can check your free credit report on NerdWallet to see when an account is reported as being closed.

How do you get a paid off loan off your credit report?

Do paid off loans stay on credit report?