What is a credit card charge-off?

Summary

• A credit card charge-off occurs when a card provider records an unpaid balance as a loss after several months of missed payments.
• A charge-off does not erase your debt; you remain legally responsible for repaying what you owe.
• After a charge-off, your card provider can collect the debt directly, hire a collection agency to pursue repayment while keeping ownership, or sell your debt to a debt buyer which will then collect it.
• Charged-off accounts can continue to affect your credit score and may remain on your credit report for up to seven years.
• Although a charge-off is a serious credit event, consistent positive activity can help you improve your credit over time.

Missed credit card payments lower your credit score, and after several months of missed payments, your provider could write off the balance as a loss. This is known as a charge-off, and it doesn't mean your debt is forgiven. You're still legally responsible for paying what you owe, and the account may continue to affect your credit for years.

While a charge-off is a setback, it doesn't have to define your financial future. Understanding charge-offs and how to move forward can help you take steps toward rebuilding your credit and reaching your financial goals.

What's the meaning of a credit card charge-off?

A credit card charge-off means your card provider has decided an unpaid balance is unlikely to be collected and has recorded it as a loss. Writing off the loss helps the lender present an accurate picture of its finances while complying with regulatory and accounting standards.

When does a charge-off happen?

Charge-offs typically occur when an account has remained past due for several months.

Your account might also be charged off if you consistently make less than the minimum payment. Paying less than the minimum required keeps your account past due. After a certain point — again, about 120-180 days — your card provider may charge off the account.

Do you still owe a debt that's been charged off?

You're still responsible for repaying the balance on an account after a charge-off. Moreover, interest and fees may continue to accrue.

Your card provider has a few options for collecting the debt:

• Keep the debt in-house and continue collections efforts internally.
• Transfer the account to a third-party collection agency while retaining ownership.
• Sell the debt to a debt buyer, which then owns the account and may collect on it.¹

If a charged-off account is transferred or sold, it may appear more than once on your credit report. The original credit card account usually remains listed as a charge-off under your card provider’s name, while the third party may also report a separate collection account — either in its own name, if it’s a debt buyer, or on behalf of the card provider, if it’s a collection agency.²

How do charge-offs affect your credit?

Charge-offs typically follow a long period of missed payments, so they often cause a noticeable drop in your credit score. A charge-off on your report might also make it difficult to qualify for new loans or credit cards. If you’re approved for credit, you may be offered a higher interest rate, which increases your overall borrowing costs.

What's more, these effects can last for years. Charge-offs can stay on your credit report for up to seven years from the date of the first missed payment.

If you repay the debt, does it stay on your credit report?

A charge-off remains on your credit report for up to seven years, even if you repay the balance. Once paid, the account is typically updated to show a paid charge-off or paid collection, depending on who owns the debt.

Although a charge-off stays on your report, repaying the balance is often a positive step. Some lenders see a paid charge-off or collection as a sign that you've addressed past debt, which could make them more open to working with you in the future.

 

How to rebuild your credit after a charge-off

 

A charge-off can affect your credit profile for several years, but it doesn't cause permanent damage. In fact, you may be able to start rebuilding your credit by adding consistent, positive activity to your credit report.

A secured credit card is one option to consider. These cards are often easier to qualify for because you put down a refundable deposit that typically sets your credit limit. Making on-time payments and using the card responsibly may help you rebuild your credit history.