Most lenders and creditors write off an account as a bad debt six months after it becomes delinquent. That doesn’t get you off the hook for paying the money you owe, as the debt will appear on your credit report as a charge-off. The creditor can then turn the account over to a collection agency. Although settling an old debt can lower your credit score, it is smart to pay off the debt if you want to apply for a home loan.
How To Clean Up Credit Report ... One of the best ways to improve your credit score is to clean up your credit reports, and remove derogatory, damaging, listings. This information is what's bringing down your score.