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What Is a Credit Card Charge-Off?

You're still responsible for debt that's been charged off.

A silhouette of a woman stands next to three large credit cards dominoing into her
C.J. Burton/Getty Images

A credit card charge-off happens when an issuer closes your account and takes the outstanding balance as a loss. This usually occurs after you don't make at least the minimum monthly payment for six months in a row. Note that you'll still owe the money, however; credit card issuers typically sell your outstanding balance to a debt collector who will pursue payment more assertively. A charge-off will hurt your credit score significantly and should be conscientiously avoided. 

What to know if you have a credit card charge-off

A creditor may "charge off" your account if it believes you won't pay. Once that happens, the company can write off the remaining balance as a loss for tax purposes. Creditors typically charge off an account after it's been delinquent for six months. Delinquency is defined as being late more than 30 days on your credit card payment.

But you're not off the hook. You're still responsible for repaying the debt and if you don't address it promptly, you may incur additional fees and interest.

Often, a debt collector or collection agency will begin to pursue you. Collection agencies usually buy a charged-off debt for pennies on the dollar and then try to collect the balance. This may result in frequent attempts to contact you over the phone or by mail. 

In addition to the nuisance of dealing with debt collectors and being subject to additional penalties and a potentially higher interest rate, a charge-off will also have a significant negative effect on your credit. 

How a charge-off affects your credit

Though your credit score will likely have been damaged already after missing multiple payments, a charge-off will take a major bite out of your score. It will remain on your credit history for seven years and be a bright red flag to future creditors. 

The charged-off debt may appear twice on your credit report -- once as reported by the original creditor and then again by the collection agency or debt buyer, who will report your account as "Placed or Transferred for Collection."

Once the debt is paid in full, the entry for the collection account will be updated to "Paid Collection." That will at least partially restore your credit score. Not attending to a charged-off account will result in further torpedoing your credit score.

How to get a charge-off removed from my credit report

If you need help managing your debt, explore debt management or credit counseling services. If you intend to handle the charge-off on your own, there are a few ways you can address the situation:

  • Check your credit report for inaccuracies. Review your credit report. If you find errors, such as a loan that shouldn't be listed as delinquent, dispute it with the credit bureau by providing documentation.
  • Pay off your debt. If the charge-off is legitimate, the best solution is to work out a payment arrangement with the original lender or collections agency. Once you've made a payment, the status of your account will be changed to "Paid Charge-off," which is more favorable than an account that's listed as "Placed or Transferred for Collection."
  • Negotiate a pay-for-delete agreement. After you've paid off your debt, you can reach out to the original lender or collections agency and ask them to remove the charge-off from your credit report. Though the creditor is not obligated to do so, it may be willing to if you've settled your balance. 

Once you've resolved your charge-off, it will be crucial to promptly address all of your minimum monthly payments to fortify your credit and avoid another charge-off.

The bottom line

If your credit card issuer closes your account and takes a charge-off, you're still responsible for paying off the debt. To repair your credit after a charge-off, it will be essential to address all of the credit-building basics, use your credit limits responsibly, and make all your payments on time to avoid fees and penalty APRs

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