What Does a Charge-Off Mean On Your Credit Report?

Nicolas Cesare
Credit Card Charge-Offs

Getting a charge-off on your credit history is one of the worst credit card mistakes that you can commit. A charge-off occurs after you’ve failed to meet the minimum required payments from your credit card company after a long time. Usually this happens after 180 days (or six months) without payment.

The good news is that charge-offs are easily avoidable, making them a mistake that you don’t have to suffer through. If you haven’t received a charge-off yet, then there are options to avoid it altogether.

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How Does a Charge-Off Affect Your Credit?

Thirty days after the due date on your credit card bill, your credit card company will add a late payment notice to your credit report. This is something that you want to avoid whenever possible, but it’s not the worst that can happen.

If 180 days have passed from your due date and you still haven’t paid your balance to your credit card company, then a charge-off will be added to your credit history. A charge-off is different from a late payment notice in two ways:

  • The credit card company will treat it differently. Before the charge-off, they were counting your payments as revenue for the year. Now they’re putting your debt down as a loss in their books. However, this does not mean that you are in the clear. You are still expected to pay your credit card debt. A charge-off does not forgive debt.
  • A charge-off is much more severe than a late payment notice. Having a charge-off on your credit history will do more damage to your credit score, making it difficult to get loans and good credit card deals in the future. It can also mean losing access to your credit card account.

How to Avoid a Charge-Off

The best way to avoid a charge-off is to always pay your balance in full at the end of each month. This will keep you out of hot water with the credit card company and even improve your credit score, as you show that you can consistently pay off debt on time.

Avoiding Charge-Offs on a Tight Budget

If paying your complete balance isn’t an option, make sure you’re at least hitting your minimum payments each month. Getting these minimum required payments in will help you to avoid late fees and keep late payment notices off of your credit card.

If you find that you are unable to keep up with even your minimum monthly payments, then it’s time to reevaluate how you are using your card. Make sure that you are budgeting responsibly to keep your credit card spending within your means. If you have another authorized user on your account, talk to them about keeping their spending reasonable as well.

Additionally, it is difficult, but not impossible, to remove a charge-off from your credit report or work to repair your credit after taking a big hit.

How to Remove a Charge-Off From a Credit Report

The best option for removing a charge-off is usually to negotiate a settlement with your creditor. Essentially, this process will involve contacting the original creditor, offering a settlement amount, and securing an agreement from them that they will remove the debt from your credit report once the agreed-upon amount has been paid.

This sounds very straight-forward, but there are some things you should keep in mind when taking this approach:

  • If possible, speak to the original creditor, rather than a third-party collection agency;
  • Get the agreement in writing on their company letterhead;
  • Give them a deadline to respond to your inquiry.

While a charge-off is a serious action that can have a significant, negative impact on your credit report, it is not the end of the world. It is often very feasible to solve your past credit mishaps, or at least cut your losses.

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