How Long Before a Credit Card Is Charged Off?

A credit card charge-off occurs when a lender determines that a debt is unlikely to be collected. This action signifies that the creditor has written off the outstanding balance as a loss on their financial records. From a consumer’s perspective, a charge-off means the original creditor no longer expects to receive payments directly from the borrower.

Understanding Charge-Off

A charge-off is primarily an accounting procedure performed by a creditor. It involves moving a delinquent debt from an active asset, known as an accounts receivable, to a bad debt or loss account on the lender’s balance sheet. This reclassification provides a more accurate picture of the institution’s financial health to regulators and investors, as it removes unlikely-to-be-collected funds from their expected income.

Creditors implement charge-offs for several reasons, including regulatory requirements and the unlikelihood of future collection efforts succeeding. A charge-off does not forgive or erase the debt; the borrower remains legally obligated to repay the amount owed. The action changes how the debt is viewed internally by the lender, indicating they have ceased active collection attempts themselves and are recognizing the debt as a loss for tax and reporting purposes.

The Charge-Off Timeline

Credit card accounts are typically charged off after a period of sustained non-payment, usually around 180 days. This industry standard is largely driven by regulatory guidelines issued by bodies such as the Federal Financial Institutions Examination Council (FFIEC). The FFIEC’s Uniform Retail Credit Classification and Account Management Policy requires open-end accounts, including credit cards, that are 180 days or more past due to be charged off.

The process leading to a charge-off involves several stages of delinquency. Initially, an account becomes delinquent after 30 days of a missed payment. The delinquency progresses through stages, such as 60, 90, 120, and 150 days past due, before reaching the 180-day mark. During this period, the creditor engages in escalating collection efforts, including calls and letters to encourage payment.

Impact on Credit and Debt

A credit card charge-off carries negative consequences for a consumer’s credit profile. It is considered a serious derogatory mark on a credit report, indicating a failure to repay a financial obligation. This negative entry can lower credit scores, making it difficult to qualify for new loans, credit cards, or favorable interest rates in the future.

A charge-off remains on a consumer’s credit report for up to seven years from the date of the first missed payment that led to the delinquency. Even if the debt is eventually paid, the charge-off itself will not be removed before this seven-year period expires; its status may update to “paid charge-off” or “settled.” The original creditor may continue collection efforts, or more commonly, sell the charged-off debt to a third-party debt collection agency or debt buyer for a reduced amount. These entities then acquire the right to pursue the full amount owed and will engage in their own collection activities, which can include phone calls, letters, and potentially legal action to recover the debt.