How Is A Charge Off Rate Tracked And Calculated?
Credit card issuers track their charge off rate because creditors record all of the loans they issue to borrower as assets under “accounts receivable.” The creditor monitors their borrowers account to determine if regular repayments are being made. If the borrower does not make payments for several months, usually a standard period of one hundred and eighty days, then the creditor may decide that there is no chance of the debt being repaid. It is then charged off and recorded as a loss. Credit card charge off rates are calculated by taking the total amount of debts which the credit card issuer has decided to charge off and dividing it by the total average balance still owed by all of the credit card issuers account holders. It is common for credit card charge off rates to increase substantially in times of economic downturn when borrowers are more likely to be unable to pay their debts. There is also a tendency for the fluctuations in credit card charge off rates to mirror the rise and
