Credit Card Charge-Offs: How to Avoid, Remove, or Repair Your Credit

Nicolas Cesare  | 

Getting a charge-off on your credit history is one of the the worst credit card mistakes that you can commit. A charge-off on your 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 one 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. If you have already received a charge-off on your credit history, it’s difficult, but not impossible, to have it removed or work to repair your credit after taking a big hit.

What is a Charge-Off?

30 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 has 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 much more damage to your credit score, making it more 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.

If paying your complete balance isn’t an option for you, make sure that 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, you should talk to them about keeping spending reasonable as well.

How to Get a Charge-Off Removed From Your Credit History

Once you have a charge-off on your credit history, you options are much more limited. The best hope for you at this point is that the charge-off has been added in error. Credit card companies do make mistakes, and it’s oftentimes up to cardholders to fix them. If you know that you have made your payments on time, then contact your credit card company to fix the mistakes on your credit report.

If the charge-off was not added in error, then your chances are much lower for getting it removed. If your credit score has been good in other areas and you’ve built up a history of loyalty and timely payments, then you may be able to negotiate with your credit card company to get the charge-off removed, contingent upon your paying the owed amount in full. This is not guaranteed to work, but arguing that the charge-off was a fluke in your overall credit history will improve your chances.

Repairing Your Credit After a Charge-Off

Getting hit with a charge-off will do massive damage to your credit score. If you are unable to get it removed, then it’s time to go into recovery mode. The goal now is to repair your credit.

Work on developing good financial habits like budgeting, responsible credit card use, and paying your bills on time. Over time, these good habits will outweigh your charge-off and, after seven years, the charge-off will disappear from your credit history completely.

Charge-offs can be a nightmare if you have one on your credit report. Avoid them by using your credit cards responsibly and paying off your balance in full each month. If you are hit by a charge-off, make sure that it isn’t a mistake. Charge-offs are bad, but it is possible to repair your credit and move forward.

Looking for more information on credit cards and how they work? Visit our credit card resource and learning center for more tips and guides. For more information on the “credit” part of credit cards, visit our credit score resource center.

Image Source

Nick Cesare is a writer from Boise, ID. In his free time he enjoys rock climbing and making avocado toast.

This post was updated December 14, 2017. It was originally published October 6, 2017.