Charge-Off Rate: What Does It Mean?

A charge-off rate is the percentage of a lender's total loan portfolio that has been written off as uncollectible debt over a given period, typically a year. When a borrower stops making payments for an extended period, usually 180 days, the lender declares the debt a loss on its books and charges it off. From the borrower's perspective, a charge-off is a serious negative mark on a credit report that can significantly damage a credit score and remain on record for up to seven years. Importantly, a charge-off does not mean the debt is forgiven; the lender or a third-party collection agency can still legally pursue repayment. Charge-off rates are also used as a broad indicator of consumer financial health, with rising rates often signaling economic stress.