After a certain amount of time has passed without paying a debt, the creditor will report the account as a charge-off or as a bad debt on your credit file. A charge-off can lower your credit score, which means that some creditors will deny your request for request or charge you a higher rate of interest for credit products when you apply.
Write-Off
If you don't make a payment on a loan or credit card debt for 6 months, the lender will charge your account off as a bad debt. This means they have determined that your account is uncollectable.
Time Frame
After your account is charged off, it will be reported on your credit file and remain there for 7 years. If you decide to pay a charge-off account, it will show a zero balance but it will still remain for 7 years.
Features
If an account is charged off on your credit report, it will have a credit rating of I-9 or R-9. The, "I" stands for installment loan if it's a car loan. The "R" stands for revolving account if it's a credit card account. The 9 is the code or designation for charge-off.
Warning
Charge-off accounts are normally sent to a collection agency for further activity. The debt collector will make phone calls and send letters. Legal action is a possibility.
Significance
Accounts that are charged off still have to be paid.
Expert Insight
The lender or creditor will receive a tax credit for charge-off accounts because they report them as a loss.
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