A debt that is written off as a loss because the financial institution or creditor believes it is no longer collectible due to a substantial period of nonpayment.
Charge-Off
February 8, 20233 min read
A debt that is written off as a loss because the financial institution or creditor believes it is no longer collectible due to a substantial period of nonpayment.
What Is a Charge-Off?
A charge-off on your credit report indicates the financial institution or creditor has written the account off as a loss and has stopped attempting to collect on a debt that you owe. However, a charge-off does not mean your debt is forgiven—it may be transferred to a collection agency or sold to a debt buyer. As long as the debt remains outstanding, you're still responsible to pay it.
How Does a Charge-Off Work?
When you miss a payment on a loan or credit card or have a bank account with a negative balance, the creditor or financial institution will attempt to collect the amount you owe. At some point, the creditor may determine the debt is uncollectible and decide to charge it off. This means the creditor has written off the remaining balance as a loss.
At this point, the creditor will report the account as “Charged Off” to the credit reporting agencies which will appear on your credit reports along with the account balance. If the charge-off is legitimate and you can't convince the creditor to remove it, a charge-off can remain on your credit reports for up to seven years after your first missed payment.
Once a creditor has charged off a debt, they may decide to sell it to a debt buyer or transfer it to a debt collection agency for pennies on the dollar. If this happens, your account will be closed, interest will stop accruing on your balance, and your credit report will reflect that the account was "Charged Off." However, you will still be liable for paying off the debt to the debt collection agency. Additionally, the collection agency may report a collection account for the same debt, further impacting your credit score.
Will a Charge-Off Impact Your Credit Score?
Your payment history is the most influential factor in your FICO credit score. Missing just one payment could have a significant negative impact on your credit score.
If a debt balance remains unpaid long enough for the creditor to stop attempting to collect payment, the worsening delinquency and subsequent charge-off could have a long-term and far reaching impact to your credit score.
For example, a low credit score and history of nonpayment may make it more difficult to get approved for credit in the future. It may also impact your ability to get approved for a residential lease or to qualify for lower interest rates on auto or homeowners insurance.
How Can You Repair a Charge-Off?
The best way to repair a charge-off is to prevent it from happening. If you start missing payments, don't ignore the situation. Contact your lender and ask if there’s anything that can be done to help you avoid a charge-off situation.
In the event your debt is charged off, as long as there is a balance, you’re still responsible for repayment which is why you should consider ways to pay off the debt as soon as possible to avoid having it go to collections. Even if you cannot pay off the debt in full, you may want to consider negotiating a payment settlement with the creditor for less than what you owe or, if necessary, having the debt discharged in bankruptcy.
In some cases, you may be able to negotiate with the lender to remove the charge-off from your credit report in exchange for full payment—a process known as “pay for delete.” Even if you can't get it removed, paying off the balance could potentially reduce the impact to your credit score.
If the creditor does sell the debt to a collection agency, you'll face more attempts to collect the amount you owe. Some debt collectors may even resort to lawsuits to force collection through a court order.
How Can You Limit Charge-Off Damage?
The timeframe for when a creditor decides to charge-off an account ranges from 120 to 180 days from your initial delinquency date. You'll typically receive letters and phone calls reminding you of the past-due payment, urging you to get caught up. Don't ignore the creditor—this is the best time to talk to the lender to see if you can avoid a charge-off.
If you've had an account charged off recently, contact the creditor as quickly as possible to verify the accuracy of the account details and look for opportunities to pay off some or all of the debt to avoid transfer to a collection account and further damage to your credit score.
In some cases, a charge-off could be reported in error. If this happens, it could damage your credit score, so you should act quickly to dispute the negative item with the credit reporting agencies. As long as the dispute isn't frivolous, the credit bureaus are required to investigate it and remove or update the information if it's found to be innacurate.
To contact the credit bureaus:
If the creditor decides to charge-off your account, it'll only report only to the credit reporting agencies that it normally reports to. For many lenders, it's all three, but some lenders may only report to one or two of the major credit bureaus.
Keep more of what you earn and earn more on what you save.
Checking your rate won’t impact your credit score.2
You May Also Like
Related Articles
The best debt consolidation loan is the one that costs you the least after accounting for fees, pays off your creditors efficiently, and gets funds to you when you need them.
A soft pull is a background look at your credit file that doesn't affect your credit score, while a hard pull is tied to an actual credit application and can affect your score. At Happen Bank, when you check your rate for a personal loan, you generate a soft pull – a hard pull only appears if and when a loan is issued to you. This means you can compare rates without your credit score taking a hit each time you look.
The best debt consolidation loan is the one that costs you the least after accounting for fees, pays off your creditors efficiently, and gets funds to you when you need them. Both personal loans and balance transfer options can reduce the interest you pay on credit card debt. But they work differently. A balance transfer card typically offers a low introductory APR that reverts to a standard rate, while a personal loan offers a fixed APR for the full term. If you can pay off the balance fast enough, a balance transfer card may cost less. The right choice depends on how much you owe, how quickly you can pay it down, and whether you want certainty.
Getting approved for a personal loan faster can come down to preparation more than anything else. A complete application with accurate documents moves through the process quickly. An incomplete one creates delays.
You typically go through four stages during the personal loan process: checking your APR, submitting a full application, getting an approval decision, having the funds disbursed. The length of the process can be affected by the completeness of the application. Your preparation can have more influence on timing than you might think.
Related Impact
Today, we are thrilled to announce the completion of our acquisition of Radius Bancorp, Inc. (“Radius”). In February 2020, we announced our intent to acquire Radius and shared how we can grow and deepen our customer relationships with a marketplace bank.
Today, we are thrilled to announce the completion of our acquisition of Radius Bancorp, Inc. (“Radius”). In February 2020, we announced our intent to acquire Radius and shared how we can grow and deepen our customer relationships with a marketplace bank.
Related FAQ's
You can view and manage most of your account information by signing in on the web or using the Happen Bank mobile app, including your password, phone number, physical address, loan documents, payment methods, and two-factor authentication settings.
Personal Banking Customers: Our Elite and Reserve Tier customers can place a wire via Online banking or the Happen Bank Mobile app. For all other customers, they can reach out to Customer Service at 800.242.0272 to initiate a wire.
Contact our team at 833-498-1399.
LevelUp Savings is a high-yield savings account that rewards you with a higher LevelUp Rate when you make deposits of at least $250 per statement cycle.
A wire transfer is an electronic payment service for transferring funds by wire, for example, through SWIFT, the Federal Reserve Wire Network, or the Clearing House Interbank Payments System.
Related Glossary
{noun} A type of credit that allows the borrower to make charges and payments against a set borrowing limit, paying interest only on outstanding balances.
{noun} The amount of unpaid interest that has accumulated as of a specific date, either on a loan or an interest-bearing account or investment.
{noun} The total annual cost to borrow money, including fees, expressed as a percentage.
{noun} An interest rate that remains the same for a set time, usually for the life of the loan.
{noun} A record of borrowing and repayment activity over a period of time that reflects your ability to manage and pay your debt obligations.
