Credit card charge-off and write-off

If you have defaulted your credit card payment for more than six months, you would get a statement which reads “credit charge-off”. So what does it mean? Does it mean that your payment is “waived” by the company and you no longer have to pay the debt? Definitely not! All it means that the credit card company does not consider your debt as an asset and writes off the debt as a loss for its accounting purpose. However, that does not mean that you do not owe the outstanding due amount to the company, as even if the company considers your debt as a loss, you still owe the debt to the company and the company can pursue recovery of the amount due from you at any time.

The charge-off comes into play if the cardholder does not pay the minimum amount due by the due date for a continuous period of six months. The credit card company will send notice of the amount due every month for a period of six months, but if the defaulter still does not pay up, the amount is considered as a loss and ‘charged-off’ by the company.

A ‘charge-off’ is different from ‘write-off’ because when the company writes off the debt from its books of account, the company considers it as a dead loss and the defaulter no longer owes the debt to the company and the company stops pursuing recovery of the amount due from the defaulter. However, in the case of charge-off, the company considers the outstanding amount as a loss, but it can continue to pursue its efforts to recover the amount from the defaulter.

A charge-off and write-off lowers the credit score of the individual, which can lead to denial of credit by other lenders. Hence, to avoid getting a low credit score and being denied credit in future, one must pay up all outstanding dues of credit cards on time.