What Is a Credit Card Charge-Off?
Key points about: credit card charge-offs
A credit card charge-off is when a creditor stops trying to collect a debt and has written it off as a loss.
A charge-off doesn’t mean the lender won’t stop trying to collect the credit card debt.
If the creditor can’t successfully collect the debt themselves, they may hire a debt collection agency or lawyer to try and collect it.
A credit card charge-off happens when a credit card company no longer considers the debt to be an asset, i.e., the creditor has written it off as a loss. It’s important to remember, though, the debt is still owed. While no additional charges and in some cases no additional interest charges will be added to the account, the charge-off status will be reported to credit reporting agencies and could negatively impact your credit score.
Still, there are ways to improve your credit after a charge-off. Let’s explore more about what a credit card charge-off is, and the impacts one may have on your credit.
When do credit card charge-offs occur?
Charge-offs typically occur after an individual has failed to make at least the minimum required credit card payment on their credit card debt for many months. When the charge-off occurs depends on the contract terms and type of credit card account, according to Equifax, but typically happens between 120-180 days after you first miss your due date. After the charge-off, the credit card company no longer considers the debt an asset, but at the same time, the lender won’t stop trying to collect.
That last point is important: a charge-off doesn’t mean the delinquent cardholder doesn’t have to pay their debt.
After a charge-off, who’s trying to collect payment can change though. A credit card issuer may first attempt to collect the debt itself, but after a period of unsuccessful attempts, may hire a debt collection agency or attorney to collect on its behalf. In some cases, card issuers may sell the debt. When debt is sold, its new owner may appear on your credit report along with the original creditor.
How does a credit card charge-off affect your credit?
A charge-off will appear on your credit report for up to seven years after the date the charge-off account first went delinquent. Because payment history is such an important factor of your credit score, even one missed or late payment can negatively affect your score. After several late payments and the account has been charged off, you’re likely to see a significant negative impact to your score.
Tips to stay on top of your credit
Even though a charge-off can remain on a credit report for seven years, there are still ways you can rebuild your credit during that time.
Make all payments on time. Don’t put yourself back in a situation where a charge-off might occur. Making at least the minimum payment on your credit card bill on time every month can slowly help build up your credit.
Also, don’t apply for too many new lines of credit. Applying for many lines of credit in a short time results in hard credit inquiries, which may reduce your credit score.
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