Charge-Off
When you charge a purchase on your credit card, the credit card company considers that loan an asset because the company expects to get it back from you. However, if a payment isn't made on the balance after a period of time, typically 120 to 180 days, the credit card company may write that loan off as a loss if it no longer expects it to be paid, and that's known as a charge-off.
Negative Impact
A charge-off says to future lenders who read your credit report that you are a person who does not pay their debts, so you are a particularly bad business risk. This lowers your credit score and makes it unlikely that you'll get more credit from your current credit provider or from a new one. The negative impact of a charge-off can stay on your credit for up to seven years.
'Paid as Agreed'
The company may not expect payment after a charge-off, but you're still legally obligated to repay what you borrowed. To help save your credit rating, call your credit card company and try to negotiate with them. If an agreement can be reached, they may change the status of the charge-off to "paid as agreed," which means you paid your debt, but you paid it late. When it comes to your credit score, late is much better than unpaid. Get this type of agreement in writing to make sure the company holds up its end of the bargain and your credit score is not as drastically affected.
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