Is a Credit Card Charge-Off the Same as a Write-off?

Have you ever had a credit card account that was charged off? If so, then you probably already know that it’s not something to get excited about; rather, it can be a cause for some serious concern.

Most individuals don’t realize the danger of a charged-off account. To many people, it sounds similar to a write-off. And when you write off something (like taxes), it means that you no longer have to pay them. However, in this case, you still have to repay your credit card debt; and you may have to do it with someone other than your credit card issuer.

When Does a Charge Off Occur?

A charge-off occurs when you haven’t paid the minimum amount due on your credit card for a period of at least 180 days. It may even happen if you’ve consistently paid less than the minimum amount due for a similar period of time. When a creditor charges off your account, it means that they are declaring your debt as uncollectable. In other words, they have taken a loss on your account and therefore owe the federal government a little less in the form of taxes. 

Am I Still Responsible for Paying the Debt?

The answer to this question is an unequivocal YES! The creditor may have written off your debt, but they are still legally allowed to try and retrieve the amount for several years. In fact, they can even sue you for this purpose – at least until the statute of limitations causes that debt to expire (this time period may vary from state to state).

Sometimes, instead of trying to collect the amount on their own, credit card companies hire debt collection agencies or sell the debt for pennies on the dollar. This means that if your account is charged off, you may have to make the payment to someone other than the original creditor.

The Impact on Your Credit Score

Charge-offs have a highly negative impact on a consumer’s credit score. They leave a black mark for a period of at least seven years. This, coupled with the list of missed payments that led to the blemish, can seriously hamper a borrower’s attempt to get further loans in the form of a mortgage, car loan or even another credit card, as lenders are not likely to take a risk with them.

What You Can Do About It

For starters, you can lessen the damage to your score by paying off the debt in full, or partially, depending on your capacity. While it won’t remove the blemish from your report, it will at least show a status of “Charge Off Paid” or “Charge Off Settled,” either of which is highly preferable to simply “Charged Off.” This is because most lenders feel better if they see that the consumer has paid back at least some of his debt, compared to nothing at all. Once the seven-year period is over, the account will completely fall off your report. You may even try to negotiate with the creditor to have it completely removed from your report by offering to pay the account in full; however, this is usually a very tough negotiation.

In case the charge-off was due to a hardship, such as a layoff or medical emergency, and if prior to that you’ve always had a history of on-time payments, you can request the creditor to remove the mark from your report by citing reasons for the delinquency.

Finally, remember that although having a charge-off on your report is undesirable, it is not the end of the world. You can improve the situation by repaying the amount and then outweighing this one negative by other positives - such as making timely payments on other existing loans. Eventually, by upholding good credit practices, you can banish this black mark from your history forever.

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