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Charge-Offs: How it Relates to Consumers and Their Credit Reports

The following is provided as general information to better understand the term “charge-off” and the potential consequences such status has on credit bureau reports. No information stated herein is intended to be construed as legal advice.

“Charge-off” is primarily an accounting term used when a creditor eliminates a receivable (the balance due on an account) from the creditor's assets. It is sometimes referred to as a “non-performing asset' or a “write-off.” An account said to be “charged-off” is considered uncollectable by the creditor for the purpose of fiscal reports. However, most creditors will continue to pursue collection of the debt, or may sell or assign the account to a collection agency. In practice, therefore, most creditors, or their assignees, do not consider the debt uncollectable until the debt has aged considerably; in some cases, collection activity may span a decade or more.

Charged-off accounts are generally reported to the credit bureaus as an “I9” (Installment Loan #9) or “R9” (Revolving Account #9). The number 9 is the code for “charge-off.” Credit bureau reports do not reflect the reason for an account being charged-off, for example, whether caused through negligence or misfortune; unless the debtor himself or herself has submitted a brief explanation. The following is a typical annotation on a credit report which has been charged-off. Note, however, that each credit bureaus varies in their terminology.

“This account was opened (date) and had revolving repayment terms. You have contractual responsibility for this account and are primarily responsible for its payment. The high balance of this account is (amount). The charge-off amount of this account is (amount). As of (date) this account is seriously past due and written off as uncollectable. Your balance as of (date) is (amount). The last payment reported to (name of reporting credit bureau) was made on (date).”

In short, the credit industry generally regard charge-offs as meaning the debtor failed to meet the terms of the contractual agreement, or subsequent modified terms or offers of settlement, and the account has reached a point beyond the tolerance of the creditor.

Creditors vary widely in the number of days they allow an account to become delinquent before it charges off. Generally, an account will charge-off once it reaches 180 days past due, while some creditors allow 210 days. A few creditors will never consider an account as charged-off providing they are receiving some level of payment periodically. Accounts due-in-full within 30 days of statement receipt will sometimes charge-off after a mere 90 days past due.

Some states may regulate how and when a creditor may consider an account as charged-off. Also, certain types of secured accounts and real estate debts may need to follow certain guidelines before the creditor may consider the account as charged-off. In short, however, the charge-off period for most unsecured debts and financial obligations is arbitrarily set and controlled by the creditor.

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