What is a charge off?

[Jada]

Hi - I have perfect credit, except for two old department store accounts on my credit report that I don't even remember opening. Both of them are reporting as Charged Off, what is a charge off? I don't remember owning them any money, nor do I recall receiving any notices or past due letters. They are reporting with a zero balance, does this mean I don't have to worry about them? Does this look bad to other lenders, as I want to buy a home soon. Thanks.

[Mangie]

Most People think that when a debt has been charged-off that it's been cleared by the creditor. They are still liable for paying off the debt. However, you will not be able to use your credit card to make purchases.

Creditors and lenders, have what is known as profits and losses yearly. They make money from profits and lose money from losses. When a creditor finally charges-off an account, it's declaring your debt as a loss for the company.

The creditor although acknowledges the debt as a loss in its financial records, you are still responsible for the debt. The creditor or lender will add a negative entry on your credit report (a charge-off) and will probably continue to attempt to collect on the debt or sell it to a collection agency.

An account goes into charge off after 180 days, or six months. The charge-off will stay on your credit report for a duration of 7 years from the date it was charged-off. If you pay the debt, it will appear as updated with a status of "Paid Charged-Off " or "Settled Charged-Off ." These statuses are better than a "unpaid charge-off" status, but are both still something you should try to avoid at all costs...if you can.