When you have a charge-off on your credit report, it can be difficult to get approved for new credit cards, car loans, or mortgages.
Charge-offs are considered very negative items on your credit report and can stay there for up to seven years.
In this article, we will discuss three effective ways to remove charge-offs from your credit report so that you can improve your credit score.
1. Offer To Pay The Creditor To Delete The Charge-Off
One way to remove a charge-off from your credit report is to offer to pay the creditor to delete the charge-off from your credit report.
This is called a goodwill deletion and it can be an effective way to improve your credit score.
This is typically easier if it’s new and you are dealing with the credit card issuer or creditor’s in-house collection team.
To do this, you will need to contact the creditor and explain your situation.
Then, you will need to make an offer to pay the outstanding balance in full.
If the creditor agrees, they will then delete the charge-off from your credit report.
However, if the creditor or third-party debt collector does not agree, you may still be able to negotiate a settlement for less than the full amount owed.
Before You Pay the Charge-Off
Before you pay the charge-off, you should:
1. Analyze your credit report to see if the charge-off is accurate.
2. If the charge-off is accurate, negotiate with the creditor to have it removed in exchange for payment.
3. If the charge-off is inaccurate, dispute it with the credit bureau.
keep in mind
- If the charge-off was a long time ago, don’t offer to pay the full amount due. Rather than agreeing to pay the entire amount requested, negotiate for a lesser amount. Make a start at 50 percent and work your way up if necessary.
- Creditors may claim that they are unable to legally remove the charge-off. This isn’t correct. Continue to negotiate until a settlement is reached.
- However, you can negotiate by phone, but before sending them a check or making an internet payment, get the payment arrangement in writing.
- Never allow debt collectors access to your bank account.
2. Use The Advanced Method to Dispute the Charge-Off
Assuming you have already followed the instructions in the article above, you should now have a credit report that does not show the charge-off.
If the charge-off is still appearing on your credit report, you can dispute it using the advanced method.
To do this, you will need to send a dispute letter to the credit bureau that is reporting the charge-off. To dispute the entry you’ll first need a copy of your current credit report.
Charge off Dispute Letter
In the letter, you will need to include proof that the charge-off has been removed from your credit report.
This can be a copy of your credit report with the charge-off no longer appearing, because of the coronavirus pandemic, you can get a free copy of your credit report each week instead of just once a year.
Visit AnnualCreditReport.com to get a free credit report from TransUnion, Experian, and Equifax or a letter from the creditor confirming that the debt has been paid in full.
The key here is to be very specific. If anything is inaccurate you have the right to dispute the entire entry.
Here are a few things to double-check:
- Account Number
- Creditor Name
- Open Date
- Charge-off Date
- Payment History
- Borrower Names
- Balance
If you find any information that isn’t correct, write a letter to each of the three credit bureaus with the false information and suggestions for how it can be corrected or deleted.
If the charge-off isn’t verified, the credit reporting agencies will be required to correct or delete it in accordance with the Fair Credit Reporting Act.
The charge-off information may be incomplete or incorrect. When this happens, the entry will be deleted. However, if the charge-off is reported correctly, disputing it will not help.
If you have any questions about how to dispute a charge-off on your credit report, you can always contact a professional credit repair company for help.
3. Professional Credit Repair Companies Can Help Remove The Charge-Off
If you want to remove a charge-off from your credit report, you can do so by working with a professional credit repair company. Credit repair companies like The Credit Pros, Credit Saint have years of experience getting inaccurate and negative items removed, and may help speed up the process of repairing your credit.
There are a few things to keep in mind when working with a credit repair company:
1. Make sure the company is reputable and has a good track record. There are many scams out there, so be careful.
2. Be sure to read the contract carefully before signing anything. You don’t want to be beholden to a company that isn’t delivering on its promises.
3. Be prepared to pay for the services rendered. While some companies may offer free consultations, they will likely charge for their actual services.
If you decide to work with a credit repair company, make sure you do your research and choose one that you can trust.
Understanding Charge-Offs
Charge-offs happen when you default on a debt and the creditor writes it off as a loss. This usually happens after about six months of nonpayment, but it can vary by company and type of debt.
Charge-offs stay on your credit report for up to seven years and can make it hard to get approved for new credit.
They also lower your credit score, which can make it more difficult to get favorable terms on an auto loan, lines of credit, and other types of credit products.
Charge-offs are serious, but they don’t have to be permanent. If you’re able to get back on track with your payments, you can eventually remove the charge-off from your credit report.
If you’re struggling to make payments or you’re already in collections, there are other options to consider, such as debt settlement or bankruptcy.
How Does a Charge-Off Affect Your Credit Score?
Once an account has been written off, it’s likely that two things will happen:
- First, you’ll receive calls and letters from debt collectors attempting to collect the money.
- Second, your credit report will show the account as a “charge-off.”
A charge-off on your credit report will have a major detrimental impact on your FICO score. A single charge-off may knock 150 or more points off of your credit score. It’s a significant issue.
Your credit card issuer may have also lowered your credit limit
You’ll also find it more difficult to acquire new credit cards, mortgages, or auto loans as a result of this.
Lenders and credit card issuers are hesitant to grant credit to persons with even one charge-off on their credit report.
Should you pay a charge-off?
After a payment attempt has been unsuccessful, it may be tempting to not pay off the account. However, paying is always preferable to not paying because you remain legally responsible for the debt until it is paid or settled.
A charge-off is when you’ve made all of your required payments, including the principal and any additional interest that has accrued. A settled charge-off implies you’ve agreed to pay a debt collector less than the total original amount.
You may also file for bankruptcy to discharge your debt, which will negatively affect your credit report.
If you don’t pay, you could end up owing more if the terms of the debt agreement allow. This is because, under the Fair Debt Collection Practices Act, collectors of specific kinds of debts are permitted to charge interest on unpaid balances until they recover the money owed.
Not paying can harm your credit history, even if you pay off the debt. A poor payment history could prevent you from getting a loan in the future.
Lenders and credit card companies will generally want a good payment history and a debt-to-income ratio that indicates your ability to pay.
Even if you obtain a loan or credit card, your interest rates will most likely be higher than if your credit was in good standing.
Can you be sued for a charge-off?
Yes, in some cases you can be sued for a charge-off. creditors may choose to sue debtors who have charge-offs on their credit reports in an effort to collect the debts.
However, there are statutes of limitations that vary by state and type of debt, so creditors may not always be successful in suing for a charge-off.
If you are served with a court summons, you have 30 days to respond. If you don’t reply, the court may grant a default judgment in favor of the creditor, allowing them to seize your wage or bank account.
If you’re faced with a lawsuit related to a charge-off, it’s important to seek legal assistance as soon as possible.
Paid vs. Unpaid Charge-Offs
There are two types of charge-offs: paid and unpaid. A paid charge-off is when you pay the full amount of the debt that was charged off.
Unpaid charge-off
An unpaid charge-off is when you don’t pay the debt in full and the creditor writes it off as a loss. Charge-offs can stay on your credit report for up to seven years, and they can have a major negative impact on your credit score. That’s why it’s important to understand the difference between paid and unpaid charge-offs, and how each one can impact your credit.
Paid charge-offs
Paid charge-offs will still appear on your credit report, but they will be noted as “paid.” This shows creditors that you took responsibility for the debt and repaid it in full.
An unpaid charge off account, on the other hand, will remain on your report as “unpaid” and will continue to damage your credit score.
If you have an unpaid charge-off, you should take steps to contact the creditor or debt collectors and try to negotiate a payment plan. By doing so, you can avoid having the charge-off reported as unpaid on your credit profile.
Will My Credit Score Improve if I Pay the Charge-Off in Full?
If you’re trying to improve your credit score, paying off a charge-off can help. A charge-off is an account that’s been sent to collections because you haven’t paid it.
When an account is charged off, the creditor writes it off as a loss. The account is then reported to the credit bureaus as a charge-off, which has a negative effect on your credit score.
However, if you pay the charge-off in full, the account will be removed from your credit report. This will have a positive effect on your credit score.
If you’re trying to improve your credit score, paying off a charge-off is worth considering.
How Long Do Charge-Offs Stay on Your Credit Report?
A charge-off will stay on your credit report for seven years.
Sample Letter To Remove a Charge-Off From Credit Report
This is useful for attempting to negotiate a full removal or PAID AS AGREED on a debt that has CHARGE-OFF or SERIOUSLY PAST DUE on your credit report.
[today’s date]
[original creditor or name of collection agency if the account was sold]
[creditor address]
RE: [account ex: Citibank Mastercard] account # [full account number] (if contacting
a collection agency include the original acc. number, i.e., the Mastercard number in
this case, and also include any acc. number assigned by the collection agency –this
number would be on one of your collection letters)
Dear Sir or Madam,
After recently reviewing my credit report, I took notice that the above-mentioned
the account is currently in [status of the account, ex: Charge-Off] status. I sincerely would
like to take care of this account as soon as possible.
Due to [whatever caused you to be late on your payments, ex: illness], I, unfortunately, got behind on my payments and was unable to meet my obligations.
However, since then my situation has greatly improved and I am in a position to recompense this debt.
I am willing to pay [creditor’s name] [x payments a month] equalling the amount of [total they are requesting] provided that the above account is updated on all credit reporting agencies to state: PAID AS AGREED, or completely removed from all credit reporting agencies upon my final payment.
I am not agreeing to an updated credit report that states this account as “PAID CHARGE-OFF” or the like, as this will not significantly increase my credit score, nor will it reflect my sincere willingness to restore my good name and hopefully, someday, again do business with your company.
Your written response will serve as an agreement to my proposal and I will begin payments. Thank you very much for your valuable time.
Best regards,
Sources
- Federal Trade Commission. “Credit Repair Organizations Act,” https://www.ftc.gov/enforcement/statutes/credit-repair-organizations-act. Accessed April 27, 2021
- Federal Trade Commission. “Fair Credit Reporting Act,” https://www.ftc.gov/enforcement/statutes/fair-credit-reporting-act. Accessed April 27, 2021.
- Federal Trade Commission. “Debt Collection FAQs,”
https://www.consumer.ftc.gov/articles/debt-collection-faqs. Accessed April 27, 2021. - Federal Trade Commission. “Don’t recognize that debt? Here’s what to do,” https://www.consumer.ftc.gov/blog/2015/12/dont-recognize-debt-heres-what-do. Accessed April 27, 2021.
- Federal Trade Commission. “Fair Debt Collection Practices Act,” https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-debt-collection-practices-act-text. Accessed April 27, 2021.
- Experian. “What Is the Statute of Limitations on Debt?” https://www.experian.com/blogs/ask-experian/what-is-the-statute-of-limitations-on-debt/. Accessed April 27, 2021.
- MyFico.com. “What are the different categories of late payments and how does your FICO® Score consider late payments?” https://www.myfico.com/credit-education/faq/negative-reasons/late-payments. Accessed April 27, 2021.
- MyFico.com. “What is Payment History?” https://www.myfico.com/credit-education/credit-scores/payment-history. Accessed April 27, 2021.
