What does 'charged off' mean?

January 28, 2011 

Dear Dave: We recently saw a copy of our credit report, and one debt we had was listed as "charged off as bad debt.” What does this mean?

- Sheila

Dear Sheila,

Simply put, it means you didn't pay them. You had a debt you never paid, so the creditor never got their money, and they wrote you off as a deadbeat. I'm being facetious, of course, but in credit terms that's pretty much what it means.

If you want to get that cleaned up, you'll have to go to the creditor and make arrangements to settle the debt with them. Once you do that, it will read "bad debt settled.” It's still not an ideal situation, but it's much better than having "charged off as bad debt” stuck on your credit report.

Remember, you always settle a bad debt in writing. Never give a creditor or collections company electronic access to your checking account, because lots of them will steal from you. I've seen plenty of cases where there was no written agreement, and a collector took out more than they said they would. Then, somebody's house payment bounced.

- Dave

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