Definition of Net Charge-Off Ratio

The net charge-off ratio is the money comprising the distinction between total charge-offs and any subsequent recoveries of delinquent debts.

Brief Explanation of Net Charge-Off Ratio

The net charge-off is often a percentage comprising that quantity of debts that an organization believes it will never collect compare to average receivables. Debt that is unlikely to be retrieved is often written off and classified as total charge-offs. If at later debts, some money is retrieved on the debts, the quantity is deducted from the total charge-offs to estimate the net charge-off value. Bad debts or a poor credit score quality loans are regularly charged off as bad debts and cleared from the books, often on a monthly or quarterly basis. If and when part of the debts are paid back, the net charge-off can be measured by finding the distinction the total charge-offs and the paid back debts. A negative value for net charge-offs indicates that recoveries are greater than charge-offs during a particular. The net charge-off quantity is based on statists determining what debts are likely to become the default. A credit score bank, for example, may post a 10.31% net cost off quantity, meaning that, for the specified period, the organization desires that 10.31% of its debts will never be retrieved.