Charge Off

A charge off is an uncollectible credit card debt or loan that the lender removes from their active receivable accounts. A charge off may also be known as a bad debt. However, the consumer will still be responsible for paying the charge off and they may have to deal with collection efforts from third party agencies. Charge offs will appear as an expense on the lender’s income statement, thus reducing their net income. However, most companies will generally make a charge off allowance in their prospective financial analysis due to constant law changes and the fact that any of their borrowers may experience unforeseen circumstances that may keep them from making payments. This way if the lender does not receive payment in full, they have at least already included an estimate of those charge off expenses that may be incurred in their estimated earnings. If one of your debts are charged off, it will negatively affect your credit report.

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