How Credit Scores Work – Charge Off’s

by Rate Nerd on February 7, 2009

If you think a charge off is a good thing, think again.

Having just one charge off on your credit report can prevent you from getting approved for credit in the future.

What is a Charge Off?

A Charge Off is an action by a creditor of transferring accounts they deem non-collectible to a category such as bad debt or loss. Collectors will usually continue to try to secure payments, but the accounts are no longer considered part of a company’s account receivables or profit & loss statement.  So the company that extended credit to you may have given up, but that doesn’t mean that a collection agency has.

Potential creditors interpret a charge off as an indication that you have been irresponsible with your finances.  Therefore, they do not trust that you  will  fulfill your financial obligations in the future.  Charge offs are difficult to remove from your credit report, and have a negative effect on your credit score.

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