Financial Independence News from AAA Credit Guide
What is a charge-off?
A charge-off occurs when you are seriously delinquent in paying an account. Typically, an item is only listed as a charge-off on a credit report once it’s over 180 days late. In simple terms, when one occurs, your creditor lists the account as not being collectible.
Creditors list bad debts owed as a charge-off primarily for tax reasons, so the amounts owed can be counted as a loss and tax write off for them. Although your creditors consider the item a loss for tax purposes, they still expect the debt to be paid off completely. If you have a charge-off appear on your credit report, creditors can still try to collect on the debt. Oftentimes, they will involve a third-party collection agency to collect on the money owed.
How do charge offs affect your credit score?
Having charge-offs on your credit report can dramatically impact your credit scores. If you have even one of them on your credit report, more than likely you will be declined for most loans as they are one of the worst items that you can have appear on your credit report.