Credit Card Charge Off Procedures

Companies and organizations are required to charge off credit cards after a specific time. A charged-off account is when a company determines that the account can no longer be collected using their available resources, and the account is removed from their receivables listing. Charged-off accounts, also known as bad debts, are reported as losses for an organization at tax time.

Credit Reporting

When a customer has not paid on their account for 180 days, the account is written off as a bad debt or uncollectible account. A company will report the information to a credit reporting agency as a charge-off. The rating with the credit reporting agency will be an "R-9". The "R" stands for revolving--the type of credit-card account--and the "9" is the code for charge-off. This information remains on an individual's credit report for seven years and will lower the credit score. When a customer pays their credit card balance in full after it has been charged off, it will still remain on their credit report for seven years. The account will indicate that it is a paid charge-off. The longer a charged-off account is on a credit file, the less damaging impact it will have on a credit report. Sometimes collection agencies will negotiate settlements for less than the full balance. The debtor will sometimes attempt to have the derogatory credit information removed from their credit file as a part of the negotiation. Some collection agencies will comply with the customer's request, and some will not.

Debt Collectors

Charged-off credit card accounts are forwarded on to collection agencies, also known as third-party debt collectors. Collection agencies will begin a series of collection activities, including letters and phone calls, in an attempt to get the customer to pay the balance due. Sometimes they can be very aggressive with their attempts, but they must comply with the Fair Debt Collection Practices Act, (FDCPA), a law set in place to govern the activities of third-party debt collectors.

Communication

If a credit card customer calls in after their account has been forwarded to an agency, the credit card company will refer them to the collection agency for payment arrangements. All arrangements must be made with the agency at this point. This keeps the customer from negotiating with two different parties, which can create confusion and lead to misinterpretations regarding the customer's account.