The words charged off or written off have been confused by people for decades. For legal purposes those terms are accounting terms. It means that a creditor no longer counts a debt as an asset. It does not mean that a creditor cannot directly request you pay a debt or indirectly request you pay by sending your account to a collection firm.  

So why is a charge off so bad? Here is an example. If you have a credit card that charges off, that means that you have not brought your account up to date in 90 to 180 days. You have either not made payments on your accounts or the payments have not met the minimum payment criteria. Here is a simple example. If you owe $2,500 on a credit card and your minimum payment is forty-five dollars but you are only making $15 payments each month, your account will eventually charge off.

A charge off does not indicate why you have not been paying on your account. If you do not communicate with your creditors about your situation, they will have no choice but to assume that you are not interested in paying. If a creditor sees that you have more than one charge off, you are dodging them, you are employed and your balance owed is usually more than $200, a creditor may start a lawsuit.  

What makes charge offs worse is when you have a history of them over a period of months or years. Here is an example. The dates are as follows. Charge off #1 is 12-15-12, #2 is 4-7-13, #3 is 5-10-13 and # 4 is 6-4-13. When the scoring model (computer system) sees this, it appears that you are just a person that does not want to pay. Remember how we talked about how late payments adversely affect your credit score? These charge-offs could represent 12 to 24 late payments in less than two years. In part 2 we will talk about how to avoid charge offs.