Everything You Need To Know About Credit Card Charge-Off

Charging off is when a creditor decides to remove an unpaid debt from their reporting books. This can happen for any number of reasons, and understanding them all will help you understand your credit score and improve it if necessary and this guide will get you there.

What is a credit card charge-off?

A credit card charge off is a negative entry on your credit report and can affect your ability to get approved for future loans.

According to the Consumer Financial Protection Bureau, a charge-off occurs when a creditor writes off an account as uncollectible. The creditor does this because it has decided that there is no longer any chance of receiving payment from you (or anyone else). Usually, this happens when the debt is at least 90 days past due.

If you have multiple accounts with more than one creditor, these companies will work together in order to agree on how much to write off each account. After they do that, they’ll send each other reports about the balances and payments for each one of these debts so that all of them agree about what amount should be written off for tax purposes or whatever other reasons are relevant here (like whether or not there’s enough money left over after paying everyone back).

How long will a charge-off remain on your credit report?

If you’ve been charged off, it’ll remain on your credit report for seven years from the date of delinquency. That’s the good news. The bad news is that if you don’t pay off or remove your charge-off after seven years, it will stay on your report for up to 10 years.

“A charge-off will also be noted on your credit report. The original creditor may close your account and report the payment status as “collection” or “charge-off,” both derogatory marks on a credit report” as commented by SoFi professionals.

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You may also be able to have a charge-off removed sooner than seven years by paying off what’s owed and making at least one monthly payment toward the account each month during those seven years. This is known as putting yourself back into good standing with the creditor (or debt collector).

Does a charge-off mean you no longer have to pay the debt?

While it’s true that a charge-off can mean you no longer have to pay the debt, there are still ways for you to be sued for it. You might be sued by your creditor or their collectors for that debt. It could also be sold to another creditor who will then sue you for payment.

Should you agree to a settlement on a charged-off debt?

If you agree to a settlement on your debt, it doesn’t mean that the amount of the debt is forgiven. You will still be liable for the full amount owed and can still be sued by your creditor.

Also, creditors don’t have to report any payments made on charged-off accounts as long as they are in collections. So if you make a payment on a charged-off account after it has been charged off and then stop paying again, this may not be reported as delinquent by the credit reporting agencies.

If you’re facing a charge-off, the best thing to do is call your creditor and negotiate. You may be able to arrange a settlement that allows you to pay off the debt over time, without accruing any additional interest. If not, consider calling an attorney who can represent you in court or arbitration if necessary.