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You may be wondering what a charge off is, and why the creditor representatives keep telling you that if you do not pay the money that you owe that they will “charge-off” your account. There are a few things you may want to know about charge-offs, like how they work, how seriously damaging they are to your credit report, and when your collection account becomes a charge-off. Here are some of the myths and assumptions that some people get caught up in about charge-offs, and the facts that set those myths straight.

Myth: A charge-off is a cancellation of your account

A charge-off is not a cancellation of your credit account. They usually prohibit you from charging any money on your account long before they even consider a charge-off if you have failed to pay your debts. Closing your account simply removes your privilege of charging on the credit card account that you owe money on, which action does not affect your credit report nearly as much as a charge-off.

Myth: Getting a charge-off is the end of the world

When a collection account becomes a charge-off, it certainly does damage to your credit report. It is unavoidably true that if your account is charged off, you usually still have to pay the amount that you owe, plus you have a “bad debt” mark on your credit report that will affect your ability to get credit in the future for a long time. However, it is not the end of the world, because it can be repaired over time with renewed credit charging and payment habits that you can attain gradually.

What IS a charge-off?

A charge off is not when they close your credit account. It is not a bad mark on your credit report that will ruin you forever and take away your ability to get a loan or another credit card. A charge-off is what happens when you do not pay the money that you owe and the creditor is forced to zero out the debt on their financial ledgers. That means that in their books, it shows that you no longer owe them money, because they cannot afford to have a large negative balance.

You end up paying for a charge of not only by paying back the debt you owe, but by punishment to your credit report. This mark on your credit report will be what creditors will use to devastate your financial situation to basically get you back for their having to do a charge-off. However, though your credit report will be hurt because of this, it can be slowly repaired, as I said before.

When does a charge-off occur?

Usually, your collection account becomes a charge-off around six months after the time of nonpayment. This means that if you have not paid your bills for six months, you either already have gotten a charge-off or you are very close to having your account become so. Six months is the amount of time that your creditors have before they are forced to zero out the balance on your account.