A charge off is the term lenders use to describe an account that has become delinquent. When a person no longer makes their monthly payments on a credit card, for example, the issuer of the credit card will declare it a charge off and shut down the account.
The Temptation of Credit Cards
Credit is a tricky thing, because almost everyone needs a certain amount of it to make life easier, but it doesn’t come without risks. An offer of credit presents a temptation that is too strong for many people to resist.
The result is living beyond your means, and when you live beyond your means it is going to catch up with you, and not in a good way. So, people charge more and borrow more than they can pay back, and then they default on their payments, and the result is a charge off. Charge offs go on your credit report, and lower your credit score. Lenders are not about to lend money to someone who has a charge off or multiple charge offs on their credit report, because it means there’s a good chance they’re never going to see their money again.
Charge offs are usually made after about 6-7 months of nonpayment, and are definitely to be avoided. If you find yourself in danger of becoming a charge off, stay in touch with your lender and see what you can negotiate. Sometimes, you may be able to get a credit card debt forbearance.
Charge Offs Aren’t a Free Pass
If you do default on a loan or credit card, and it’s declared a charge off by the lender or the credit card company, that doesn’t mean you don’t have to pay the money back. You’re almost guaranteed to be hounded by debt collectors seeking to get compensation for your charge off. A charge off might sound like a “write off,” which is a tax term for a tax deduction, but the two terms have nothing to do with each other.
For more information on charge offs, credit, credit scores, lenders and other credit questions, be sure to confer with a financial professional.