How to Remove a Charge-Off from Your Credit Report

(Ad) Your credit score affects more than just whether you qualify for a loan or can get a low interest rate. How well you’ve managed your credit can also influence how much you pay for car insurance or whether you’re an attractive prospect for potential employers.

Of all the things that can affect your credit, a charge-off might be one of the most catastrophic. In this article, we’ll outline what a charge-off is and share three different ways to have one possibly removed from your credit report.

What Is a Charge-Off?

We'd like to assume almost everyone has missed a payment for a credit card account, mortgage, or another type of loan at one time or another. Whether it’s a result of juggling other financial obligations or simply forgetting about a due date, mistakes happen.

A charge-off, however, is what happens when you miss several payments. If you fail to make any payments, the creditor eventually gives up trying to collect on the debt. They write it off as uncollectible debt. This write-off in credit reporting terms is called a “charge-off.”

There are a couple of other things to note about charge-offs. First, charge-offs can apply to any debt, including student loans, credit cards, car loans, and personal loans. Also, a charge-off doesn’t happen overnight. The creditor will wait to write off the debt until you’ve missed several payments and your loan is considered delinquent.

Though the time frame of when a charge-off occurs will vary, it’s typically after non-payments for between 120 and 180 days. To put it into perspective, this means not making any payments for four to six months. At this point, the creditor reports the charge-off to the credit reporting agencies and begins working with a debt collector.

In the aftermath of a charge-off, the creditor is likely to cancel your account. Assuming that the charge-off has been reported to the three credit bureaus, typically you can expect the information to be reflected on your credit reports fairly quickly.

It might be tempting to think that if a creditor has written off your debt and filed a charge-off then you don’t have to pay. Nothing could be further from the truth.

The debt still exists, and you can expect a third-party debt collector, such as a collection agency, to begin collection efforts. This occurs when the creditor decides to sell your debt for pennies on the dollar to debt collectors. The creditor would rather collect something, and the collection agencies can focus solely on debt collection using techniques that give them the highest chance of recovering funds.

Click Here for a Free Credit Repair Consultation with Credit Saint

How to Remove a Charge-Off from Your Credit Report

In most cases, successfully removing charge-offs from your credit report can give your credit scores an almost instantaneous boost. Considering that a charge-off will remain a stain on your credit history for up to seven years, if there’s a chance to have it removed, we highly recommend giving it your best effort.

There are at least three different approaches you can take, depending on the circumstances of your charge-off.   

Negotiate With Your Lender

You might be surprised to learn that some creditors and debt collectors may be willing to accept less than what you owe. This may be particularly true in the case of a credit card issuer or a bank that has given you a student loan. Unlike an auto loan, there’s no collateral to seize, so these companies could be happy to accept whatever you can pay. After all, a small piece of the pie is better than no pie at all.

To be successful, you will need to pay off some of your debt. You can begin negotiating at as low as 25% to 50% of your balance, and then go from there.

If your creditor is not willing to reduce your debt obligation, you could request a payment plan in exchange for having the charge-off removed from your credit report.

Pay for a Deletion

Another option, similar to the first discussed, is referred to as a “pay for delete.” What this means is that you pay off your debt in exchange for having the charge-off removed.

With a pay-for-delete, you can ask the collection agency to remove the negative item, but be prepared for them to tell you that only the original creditor determines whether charged-off accounts can be erased.

The party with the authority to execute the pay-for-delete removal is the one who owns your debt balances. Make sure you’re clear on this before you begin negotiating. You can ask the collection agency if it owns the debt, and it is legally obligated to answer you honestly.

You could potentially be at an advantage if the collection agency owns the debt. The reason is that a debt collection agency will typically buy your debt at a fraction of the original balance. The amount you pay over that original amount goes into the pocket of the debt collector. Therefore, try offering to pay a portion of your balance to get the debt settled in full.

Regardless of whether you negotiate with the original lender or a collection agency for a pay-for-delete, make sure you get the agreement in writing. You could start by finding out who has the proper authority to make the decision to remove a charge-off. Then, write a letter addressed specifically to that person.

You may be tempted to pick up the phone and call the debt collector directly, but we recommend the snail mail route so that you have written documentation of the correspondence that you can submit to the credit reporting agencies.

In the letter, you can also plead your case. Explain why you fell behind on payments and the steps you’re currently taking to improve your credit score.

Another tip: Ask to have the debt classified as “satisfied in full” when it’s reported to the credit bureaus. Request this label even if you’ve agreed to settle on an amount less than your debt.

File a Credit Dispute

You can file a dispute with the credit bureau, but this method works only if the negative information on your credit reports is inaccurate. Examples of possible inaccuracies include:

• transaction dates
• account number
• amount due
• the creditor’s name
• the borrower’s name (that’s you)

These inaccuracies can occur if the creditor has the wrong information (such as they say you owe more than your records indicate) or you’ve been the victim of identity theft. In the case of identity theft, someone could have opened an account in your name, ran up charges, and then failed to make any payments.

To dispute inaccurate information, you’ll first need to get access to your credit report. You can get a free credit report once per year through AnnualCreditReport.com. 

Any inaccuracy is grounds for dispute, and your rights are protected under the Fair Credit Reporting Act (FCRA). Under this federal law, the credit reporting agency has 30 days to investigate your dispute. If they cannot prove the charge-off’s accuracy or find evidence supporting your claims, then the negative information has to be erased from your credit scoring.

Can a Credit Repair Company Help Remove a Charge-Off?

Working with a credit repair specialist may save you substantial time in removing past-due accounts and other negative information from your credit report. These credit repair companies have templates for pay-for-delete letters, and they know the ins and outs of working with the credit bureaus on behalf of their clients.

In addition to helping you remove a charge-off, some credit repair companies can advise you on budgeting and improving your credit.  For example, you could learn to become more skilled at budgeting and develop habits that inspire you to be more proactive in dealing with financial matters. Credit repair consultants can also give you tips on negotiating with creditors to waive late fees, reduce balances, and change payment due dates.

After working with a credit repair consultant, you’ll be in a better position to avoid charge-offs in the future. Of the companies we’ve worked with to remove charge-offs and help repair bad credit, we recommend Credit Saint.

How Does a Charge-Off Affect Your Credit Score?

As a negative item, a charge-off may lower your credit score dramatically. A charged-off account can have particularly disastrous effects when combined with missed payments and a collection account. Basically, one charged-off account could affect your score in three ways:

Missed payments: Each missed payment dings your score. Before reaching the status of a charged-off account, you could have four to six negative records on your credit file.

Charge-off: This line item indicates that you have several delinquent payments on a single account, and the original lender has given up debt collection efforts.

Collection account: After a charge-off, the original creditor sells your debt to a collection agency. Having an active collection account also mars your credit record.

One of the biggest concerns that consumers have about charge-offs on credit reports has to do with being able to qualify for a mortgage. Most mortgage lenders don’t automatically disqualify you for a charge-off, but they do look at your overall score.

A lower score could prevent you from getting a home loan. Even if you do qualify, you could be looking at a higher interest rate that can cost you several thousand dollars extra in interest over the life of your mortgage. Check out our guide on how to remove a collection from your credit report.

How Long Does a Charge-Off Stay on Your Credit Report?

If none of the recommendations in this guide work to get the charge-off erased from your credit report, you might be stuck with it for up to seven years.

There’s good news and bad news in this situation. The good news is that charge-offs won’t affect your credit forever. After it’s been on your credit report for seven years, a charged-off account will naturally fall off, and future lenders won’t be able to see that it ever happened. Your FICO score should begin to rise once this negative item disappears from your credit history.

The bad news is that seven years can be a long time to wait for a black mark on your credit report to go away. Fortunately, as negative items begin to age, their impact on your score tends to lessen. As a result, you can still see your credit score gradually rise despite having a charge-off, assuming that you maintain the health of the rest of your accounts.

Paid vs. Unpaid Charge-Offs

When your debt is paid in full, the charge-off status changes from an unpaid charge-off to a paid charge-off. Regardless of the status, a charge-off will remain on your credit report, and the improvement in your score might only be marginal, at best.

Even if a charge-off is paid, it is still a derogatory item on your credit report, but it will at least show lenders that you eventually paid the debt. Though not ideal, it’s still better than an unpaid charge-off.

An unpaid charge-off has the distinction of being a debt with an outstanding balance, meaning that you haven’t settled the bill with the creditor or the collection agency. Therefore, debt collection efforts can continue, and you are legally responsible for paying.

As you can imagine, an unpaid charge-off may affect your ability to secure new credit. In fact, some creditors may require that you pay any charge-offs before they approve you for credit at all.

To begin the process of rebuilding your credit score, you’ll want to have any charged-off accounts removed from your credit report as soon as possible. We believe the best ways to accomplish this feat are to pay the debt (either partially or in total) and negotiate for removal, or remove charge-offs that are inaccurate by disputing them with the credit bureaus.

Click Here for a Free Credit Repair Consultation with Credit Saint

Final Thoughts

Because charge-offs can have such an adverse effect on your credit score, the best thing you can do is avoid having a charged-off account happen in the first place.

If you’ve fallen on tough financial times through job loss, health challenges, or other obstacles, contact your creditors (including your credit card companies) to inform them of your situation. This proactive communication can go a long way in preventing negative items, including debt collection activities, from showing on your credit reports. Most creditors are willing to make payment arrangements if you can show that you’re acting in good faith and have honest intentions.

And, if any charged-off accounts on your credit report are inaccurate, don’t feel like you have to lie down and accept the consequences. You have every right to dispute incorrect information, and having it removed can ensure that you continue to be eligible for new credit and favorable interest rates.

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