charge-off
A declaration by a lender that a debt is unlikely to be collected, typically after 180 days of delinquency. Severely damages credit scores.
Example
“After six months of non-payment, the credit card company issued a charge-off, dropping his credit score by 100 points.”
Memory Tip
CHARGE-OFF = the lender CHARGES it OFF their books as a loss.
Why It Matters
A charge-off severely impacts your credit score and can remain on your credit report for up to seven years, making it harder to get approved for loans, credit cards, or even rental apartments. Understanding charge-offs helps you recognize the serious consequences of missing payments and motivates you to contact lenders before your account reaches this point.
Common Misconception
Many people believe that a charge-off means they no longer owe the debt, but this is false. Even after a lender writes off the account, you still legally owe the money and the creditor can continue collection efforts or sell the debt to a collection agency.
In Practice
If you have a credit card with a $5,000 balance and miss payments for six months, the issuer will likely charge off the account after 180 days of delinquency. Your credit score could drop 100-200 points, and the charge-off will appear on your credit report, making it difficult to qualify for a new car loan or mortgage for years to come.
Etymology
Accounting term: the lender CHARGES OFF (removes) the bad debt from their books as a loss.
Common Misspellings
Check your credit score free — no impact
Related Terms
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