This is the percentage of accounts open during a given period that are written-off as uncollectible debt because of delinquency (usually 180 days after the due date).
The credit issuer writes off the loan or account because it deems repayment as highly unlikely. The creditor suffers because it loses the money from the loan, but benefits because it receives a tax benefit associated with the write-off. When the credit issuer charges off a loan, it generally sells the debt to another agency (usually a collection agency) for a reduced price. The collection agency then attempts to receive repayment in full from the original borrower. For example, a credit issuer with a delinquent account of $1,000 will sell the account to a collection agency for 40 cents on the dollar, or $400 in hopes to recover at least part of the loan. Then, the collection agency attempts to recover the full $1,000 from the borrower to make a profit.
A charge off has drastic ramifications for the borrowers credit score and may prevent the borrower from such things as getting approved for a Mortgage or car loan.
