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What Is a Credit Card Charge-Off?


Past Due Notice on Envelope
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If you're wondering about a charge-off, it's probably because you recently checked your credit report and found that one of your credit cards has a status of "charged-off." The name can be misleading, so don't get too excited thinking that you've been let off the hook for this debt.

Many people mistakenly think when a debt has been charged-off that it's been cancelled by the creditor. This is not true. You are still responsible for paying off the debt. However, you will not be able to use your credit card to make purchases. By the time your account is charged-off, it's already been closed for several months.

How a Charge-Off Happens

Companies, including creditors and lenders, have profits and losses every year. They make money from profits and lose money from losses. When a creditor charges-off your account, it's declaring your debt as a loss for the company - because you haven't make a payment in awhile.

Even though the creditor has acknowledged your debt as a loss in its financial records, you don't get away free. Your creditor will add a negative entry (a charge-off) to your credit report and continue to attempt to collect on the debt.

An account is usually charged off after 180 days, or six months, of non-payment. Your account can even be charged off if you've been sending payment, but those payments were always less than the minimum.

The charge-off will remain on your credit report for seven years from the date it was charged-off. If you pay the debt, it will be updated with a status of "Charged-Off Paid" or "Charged-Off Settled." Either is better than a simple "charge-off" status, but are still undesirable.

The only way to remove a charge-off from your credit report is to wait the seven-year period or negotiate with the creditor to have it removed after you pay the account in full.

Bouncing Back After a Charge-Off

While having a charge-off on your credit report is bad for your credit score, all is not lost. You can rebuild your credit after a charge-off by clearing up the delinquent balance, making timely payments on all your other accounts, and giving it some time. As the charge-off gets older, it will have less impact on your credit score, especially if it's outweighed by other positive information.


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