Have you found yourself in a challenging situation, unable to cover your debts? While it may not have been planned, you now find yourself with a charge-off on your credit report.
With a sudden dip in your credit score, you will want to take quick action to try and resolve the issue.
Ideally, the creditor will remove the charge-off from your reports with some negotiating.
Let’s review the three potential ways you can try and remove a charge-off.
What is a Charge-Off?
A charge-off is a term used to describe when an account is “written off” as fully uncollectible.
The lender decides to remove an account from their balance sheets to write off the debt for tax purposes.
A charge-off typically happens when a consumer has made no payment to the lender for 180 days or more. But this number is not set in stone; some charge-offs happen as quickly as 120 days.
It’s important to remember that a charge-off does not mean you are no longer responsible for the debt and that this event has no consequences.
The creditor simply needs to move forward and clear their accounts. Creditors can claim a charge-off for any form of credit loan, including credit card debt, personal loans, student loans, car loans, hospital bills, and so on.
They are likely to hire an agency to collect on their behalf or sell the debt to a collections agency to recoup a small fraction of their losses immediately.
How To Remove a Charge-Off
The first important step is to determine who currently owns the debt. Hopefully, the original creditor still holds the debt so that you can avoid a collections entry also going on your report.
Getting a charge-off removed from your report is not a guarantee, but you can try a few options.
Negotiate a Pay-for-Delete Agreement
In this form of negotiation, you want to convince the creditor to accept your payment and, in return, have them agree to remove the charge-off from your credit report.
Be ready to make a payment arrangement; make sure you know how much you can pay and when you can make your payment before starting your negotiations.
While it would be a bonus to negotiate on the value of the debt, it’s important to remember that the more you can pay towards the overdue account, the better your negotiating position is.
Also, if your debt is a small amount, the lender will be less inclined to accept a lesser sum.
If you succeed in securing payment in exchange for the charge-off removal, be sure to get the agreement in writing before making your payment.
While negotiating by phone is often easier, nothing is official until you hold the written agreement on company letterhead.
If you prefer to send a letter, you can refer to our pay-for-delete letter template. However, be sure to address the letter to someone higher up, such as a manager or the person authorized to approve such arrangements.
Dispute the Charge-off
When negotiations don’t go as expected, you may need to seek another option. Head over to annualcreditreport.com and get a copy of your free credit report from all three major bureaus (Experian, Equifax, TransUnion).
Be sure to check all the listed information, down to the small details. If you spot any irregularities, you can dispute the entry with the credit bureau listing the errors.
It’s essential to send a letter to each of the bureaus which have the error reported.
The Federal Trade Commission provides for such circumstances; if the credit reporting agencies cannot verify the entry, they will have to remove it from your report.
Some key areas to focus on:
- Account number
- The creditor’s name
- Your name
- The balance
- Payment history
- Dates: open date, charge-off date
If you need help drafting your letter, the FTC has a sample template you can use.
Addresses of the credit bureaus to mail your letters:
Equifax Information Services LLC
P.O. Box 740256
Atlanta, GA 30348
P.O. Box 4500
Allen, TX 75013
TransUnion LLC Consumer Dispute Center
P.O. Box 2000
Chester, PA 19016
Hire a Professional To Remove The Charge-Off
While it’s nice to handle things ourselves, sometimes it is best to leave issues to professional credit repair companies.
Their years of experience mean that they know the fastest and most effective approach to repairing your credit.
And yes, these services do have fees, but if you can repair your credit and start moving forward, its cost is justified.
You can also start with a free consultation and see what they offer and suggest for your current situation.
How Does a Charge-Off Affect Your Credit?
Many people are unaware that a charge-off can have huge implications on their credit.
A charge-off, unfortunately, sends the message to lenders that you were not able to responsibly handle your debts which makes it much harder for you to secure future loans.
Plus, if the original creditor sells the account to a debt collector before you handle the matter, you will also have that negative information on your credit history.
The consequences are long-lasting as charge-offs stay on your credit reports for seven years.
Missed payments have a significant effect on your credit score.
When your account is eventually listed as a charge-off, the negative entries from the previous months of missed payments will have already taken a toll on your credit score. It’s not uncommon for credit scores to drop a good 100 points.
Paid vs. Unpaid Charge-offs
When we are discussing charge-offs, two different kinds can appear on your credit report. If you have paid the charge-off account, then your credit report will indicate the charge-off as paid.
If you still haven’t paid the account balance, the charge-off will be listed as unpaid.
Will Paying a Charge Off Improve My Credit Score?
Clearing the balance related to your charge-off, unfortunately, won’t do much for your credit score. Nor should you expect the entry to get deleted from your credit reports.
Why should you pay it off? Well, if you need a loan in the future and the lender decides to underwrite manually, having the charge-off listed as paid versus unpaid is more beneficial to you.
It confirms that you made things right and eventually cleared your debts.
How Long Does a Charge Off Stay on Your Credit Report?
When an account is reported as a charge-off, it will remain on your credit report for seven years. Once the seven years are up, the entry will be deleted automatically.
For example, you were unable to make your car loan payment for the past eight months. Your account was finally marked as a charge off to the credit bureaus on June 1, 2021. You can expect to see the charge-off on your reports until June 1, 2028.
While removing a charge-off is not a guarantee, given its impact on your credit score, it’s worth making an effort to resolve the debt and clear your credit report.
Whether you manage to secure a pay-for-delete payment, dispute the entry or hire a credit repair company, taking action is essential.
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About the author
Clara is the founder of Credit Rise Up, an entrepreneur, personal finance expert, and credit repair enthusiast. She’s committed to helping her readers get on the right track and take actionable steps towards improving their credit by using the experience that allowed her to join The 800 Club. Find out more.