Last Updated : Oct 11, 2018 11:17 AM IST | Source:

Credit card charge-off: What it means for a cardholder

A charge-off and a write-off are two completely different things. If your debt is charged off, it doesn’t mean that it is paid off.

Kunal Varma

Credit charge-off. You might have read the term in your credit card statement. Technically, a credit card charge-off means that a credit card company or credit provider does not consider a person’s debt as an asset anymore, even if the individual still owes the debt. Most people tend to confuse the term with write-off, and often wrongly assume that they do not owe the credit company any payment.

A charge-off and a write-off are two completely different things. If your debt is charged off, it doesn’t mean that it is paid off. The company writes off your debt as a loss for its own accounting purposes, but it can still hold the right to pursue the collection of past dues from the individual at any given time. The next question that pops into your head, then, might be how one comes to have a charge-off on their credit statements? Let’s find out.

Usually, your credit card statements will specify the amount for minimum payment as per your due dates, at the end of each month. However, one may end up being late in paying the amount due because of unforeseen circumstances, which is why credit card companies allow one to pay their dues anytime between the specified due date and 29 days after the due date. However, chances are one might still end up with late fee charges at the time of payment.

If one still continues to delay their payments and miss out on due dates, a notice is placed on their credit report if they are 30 days late. Failing to pay the dues for 30 consecutive days will lead to notices being placed on your credit report, for every 30 days that pass after your last missed payment. However, once the credit card holder crosses the 6-month mark on unpaid dues, their account is charged off. This could also happen if the payment made by the card holder is below the minimum amount due to the credit company. Hence, in order to avoid a charge-off, credit card holders need to make the entire payment.

How does a charge-off affect your credit report?

A charge-off is not good for your credit report at all. A charge-off is issued due to non-payment of dues, and your credit report will show all your late payments, minimum payments, and the charge-off too. This kind of negative information leads to a lower credit score, which makes it quite difficult for someone who wants to apply for new credit. In addition to this, one might also be charged a higher premium on their insurance policies, not to mention be denied credit outright.

The writer is chief business officer & co-founder of MoneyTap
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First Published on Oct 11, 2018 09:01 am
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