A charge off is basically an accounting term which indicates that a creditor has decided to remove a loan from the company balance sheet, since it has reached the conclusion that collection of the said load is unlikely. So charge off refers to the removal of a bad debt from the accounts of a creditor. But it does not mean that the loan has been forgiven. The obligation of the debtor still stands (to repay the debt). But when the charge off made, it is assumed that the borrower has possibly sold or assigned the debt and it is presently in an uncollectible state.

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A charge off affects your credit score negatively; it will ultimately decrease your credit score. If you are in a position to pay your charge off totally, then it is advisable to do it. This will not only improve your credit score but also, if you apply for a credit card, loan or mortgage to buy a car or a house, it can be seen that you are a reliable person and you clear your debts when you can. This will help you with the lenders as they will have more confidence in your abilities and intent.