Credit Charge Off – What Is It and How Does It Work?

Millions of people carry balances on their credit card accounts that carry over from month to month. For many of these people, the debt is too significant to pay off over the course of several months or even years, and some may be struggling to find funds to make the minimum monthly payments on time. Credit card debt can have a major impact on your credit rating, and your credit rating can play into other aspects of your financial security and well-being and even on your ability to purchase insurance or to qualify for a new job. Because of the financial stress and negative impact that heavy credit card debt can have on your life, you may be wondering what your options are to reduce the debt. Balance transfers and consolidations are one option, but those with more significant debt may benefit from a charge off. By learning more about what a credit charge off is, you may be able to determine how a charge off can impact your current situation.

What Is a Charge Off?
There are pros and cons associated with a charge off, but first, it is important to understand what this actually is. A charge off will not eliminate the debt that you owe to the credit card company right away. You cannot request a charge off. It is initiated by the credit card company, and this typically occurs approximately when you have a rolling delinquency on the account after 180 days. The creditor carries the amount of money that you owe to them as a loss on a profit and loss statement until you pay the money back. When the debt is on the record for too long, the company writes off the debt as a bad debt. The money is still owed to the credit card company, and a charge off is simply a declaration by the company that this is a loss for them.

The Drawbacks of a Charge Off
A charge off will be reported on your credit report, and it is a sign of a serious delinquency. Because of this, it can have a dramatic and detrimental impact on your credit rating. When you apply for credit with other creditors, the charge off will be visible to them, and your lower credit rating will also be visible. With this in mind, the charge off can have a negative impact on your ability to obtain credit in the years to come. In fact, a charge off can remain on your credit rating for up to seven years regardless of if you pay the account balance in full or not.

What to Do When You Have a Charge Off
The best step to take is to make your payments to creditors as soon as possible and to avoid a charge off situation altogether. Keep in mind that a single 30-day late payment is much less damaging to your credit rating than a charge off is. Therefore, as soon as you receive notice from your creditor that your payment is late, take action to respond accordingly. If a charge off has already occurred, it is best to pay the amount owed as soon as possible. The status showing on the credit report will indicate that the charge off has been paid. While the charge off will still be present on the credit report, the paid status will indicate that you have taken steps to bring the account current. In addition, you can then take steps to maintain the account and other accounts in good standing. This will help you to rebuild your credit rating over the coming months and years.

Credit is an important aspect of financial health. While you need a solid credit rating, too much outstanding debt can be burdensome to deal with. If you are struggling with your debts, it is best to look at consolidation, balance transfers or other options for debt reduction and management now before you begin making late payments.