What is a write-off? | creditcards.com

Some of us may have missed or forgotten a payment once or twice without causing irreparable damage to our credit. But there are times in people’s financial lives when, for a number of reasons, things go downhill and there is an important turning point. This is when things can get serious. It is important for you to understand when you are in this position, what damage you can do to your reputation and what will happen next.

One of the most devastating effects of late payments on your credit score is what is known as a write-off.

What is a write-off?

A write-off is an outstanding balance on a credit card that is past due for so long that it is removed from the bank’s books and written off from its reserves for possible losses. For the card issuer, this means that he has decided that your debt is unlikely to be collected, so he “writes off” the debt from his account.

It is important to remember that debts that have been written off are still owed, with interest and penalties accrued, and most importantly, collectible.

How does a write-off affect your credit score?

Debt write-off is the next most serious negative item on your credit report and account after bankruptcy. There are two types of charges that may appear on your credit report: paid and unpaid.

As the second most significant indicator of late bill payments, a chargeback record greatly impacts your credit score in payment history and categories of amounts owed.

Depending on how much positive data you have accumulated in your credit history over the years, you may be facing a significant downgrade in your credit score. Paying your bills on time every time means you never have to worry about conditions like charges because this only happens if you don’t pay your bills.

This does not mean that you risk being charged if you are late or even miss a couple of payments. You definitely risk damaging your account if you do this, but it usually takes longer to get debited. This is most likely to happen when your account is overdue by 180 days. This means that you have not paid your bills for at least six months.

In fact, sometimes it’s more like seven or eight months, because you generally don’t declare overdue until you’re at least 30 days overdue. While forgetting one month’s payment might be understandable, this logic won’t work for a long time. When you get into the two or three month range, there is obviously a problem that you need to address.

What happens after the unpaid debt is written off?

After the outstanding debt is written off (if not before), your creditor will definitely contact you to find out what’s going on and when they can expect payment from you. If you don’t have an answer, you may become embarrassed and tempted to simply ignore or avoid these requests. Things will only get worse if you do this.

If your creditor finds that you are not responsible, there is a good chance that your debt will be transferred or sold to a third party collection agency. If you think calls from the original lender are aggressive, you’ll likely find that professional debt collectors are much less favourable.

And here’s why: first, the lender tries to contact you to help. They may have programs, pay reduction options, and more to help the customer they want to keep. When a collection agency buys debt, you are essentially considered a liability that needs to be turned into a refund.

Of course, the Fair Debt Collection Act provides for protection against harassment by a creditor and a third-party collector. This includes excessive phone calls, false threats, and offensive language.

You have the option to tell the collector that you no longer want to be contacted about this debt. They are required by law to stop calls and emails. However, most of them will immediately send your file to the legal department for litigation.

It is important to understand that just the fact that the debt is written off does not absolutely relieve you of the obligation to pay it. If you don’t pay, you may end up suing in court for the amount you owe. And if you choose to ignore the subpoena, you automatically lose.

At this point, you may be faced with a court decision that may even limit your wages depending on the laws of the state where you live.

How long does a write-off stay on your credit report?

You should also be aware that write-offs remain on your credit report for seven years. This is true even if you end up paying off the debt.

Marking your credit report as “debit paid” will make your mistake somewhat better for future lenders. This shows that you had a problem, perhaps a serious one, but in the end you fulfilled your obligation.

What paying for a write-off won’t do is that it will raise your bill significantly. Time will help mitigate the effects of a write-off, but paying the bill doesn’t change the fact that you risk getting a loan. No one wants to wait six months or more to receive payment on a debt that was supposed to be paid in accordance with the contract.

bottom line

A write-off is a direct result of not paying a bill, which can damage your credit score and linger on your credit report for up to seven years. As with anything related to credit reporting, adopting best credit practices is the best thing you can do to mitigate the damage.

Steve Bucci has been helping people decipher and solve personal finance issues for over 20 years. He is the author of The Dummies’ Credit Management Kit, The Dummies’ Credit Repair Kit, Barnes and Noble Debt Management, co-author of The Dummies’ All-In-One Money Management Kit, and The Credit Repair Kit. For Dummies (Australia). Steve is an experienced expert witness in identity theft, credit scoring and debt cases. He has been a speaker at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at the University of Cambridge in the UK.