What Is a Charge-Off?

What Is a Charge-Off?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A charge-off is a term used in finance to describe the point when a creditor, often a credit card company or loan provider, deems an amount as unlikely to be collected. This typically happens after a borrower has been significantly delinquent on their payments, commonly after six months of non-payment. Once a debt is charged-off, it doesn’t mean the debt is forgiven. Rather, it’s moved from a receivable category to a loss in the creditor’s books, but the debtor is still obligated to pay.

Related Questions

1. Does a charge-off mean you no longer owe the debt?

No, a charge-off doesn’t mean your debt is forgiven. Even after the debt has been charged-off, you still owe the amount. The creditor can attempt to collect the debt, sell it to a collection agency, or take legal action.

2. What happens to your credit score when a debt is charged-off?

Want More Financial Tips?

Get Our Best Stuff First (for FREE)
We respect your privacy and you can unsubscribe anytime.

A charge-off can significantly impact your credit score as it demonstrates to potential lenders that you have had difficulty managing your debts. It usually stays on your credit report for seven years, starting from the date of the first missed payment.

3. How can you remove a charge-off from your credit report?

Removing a charge-off from your credit report can be challenging. However, you can negotiate with the creditor to remove the charge-off entry on your report once you settle the debt. Additionally, you can dispute the charge-off with credit bureaus if there are errors in the entry.

4. Can you still make payments on a charged-off debt?

Yes, you can still make payments on a charged-off debt. In fact, doing so may improve your chances of being approved for credit in the future. It can also help you avoid legal action from your creditor or a collection agency.

5. How can you prevent a charge-off?

The best way to prevent a charge-off is by making timely payments on outstanding debts. If you’re struggling to make payments, it can be helpful to contact your creditor and discuss alternative payment options or considerations such as forbearance, payment modification, or refinancing.