It’s not always possible to remove an accurate charge-off from your credit report, but it’s worth trying. You can try to get a charge-off removed by negotiating with your lender or debt collector.
Sometimes, people get into situations where they can no longer pay their debts. In the fourth quarter of 2020, the delinquency rate of consumer loans—including credit cards—for American consumers was 1.96 percent. After a loan is marked delinquent, it’s very possible a charge-off is around the corner. Unfortunately, a charge-off can have long-lasting consequences for your credit. For that reason, you need to understand what a charge-off is, when it happens and how to remove a charge-off from your credit report.
What is a charge-off?
When you stop making payments on a debt, the lender may eventually stop trying to collect payments from you. When they choose to do this, they “charge off” the debt. This means they write the loan off as a loss for the company, cancel your accounts and likely report the charge-off to the credit bureaus. The lender is marking your debt as “uncollectible.”
A charge-off usually only occurs after several months of missed payments—when a loan has been delinquent for a while. Experts suggest it takes an average of 120 – 180 days of missed payments before a lender will proceed to a charge-off. However, the time frame can differ for each lender.
A lender can declare a charge-off for any type of credit loan, including credit cards, auto loans, personal loans, student loans and more.
It’s important to note that your debt being charged off doesn’t mean it’s forgiven. Instead, it’s simply handed to someone else. You still have to pay your debts, and now you have to contend with the consequences of a charge-off on your credit report.
How does a charge-off affect your credit?
Unfortunately, a charge-off is one of the worst types of negative items you can have on your credit report. It shows future lenders that you’re not a reliable borrower and that you have a history of not paying back your debts. A charge-off can typically stay on your credit report for up to seven years, so it will impact your ability to get approved for credit for many years to come.
A charge-off can lower your credit score by many points. Additionally, the months of missed payments leading up to the charge-off will also likely lower your credit score significantly. And, if the charged-off debt is sent off to a collection agency, having a collection account on your credit report will likely cause a notable drop in your credit score as well.
Paid vs. unpaid charge-offs
A charge-off will show up on your credit report as either paid or unpaid. When you pay the charge-off in full, it will be updated as “paid” on your credit report. However, paying your charge-off won’t remove it from your credit report and will have a minimal impact on your credit score. Still, future lenders who go through the effort of underwriting will be able to see that while you have a charge-off on your credit report, you did pay it in full.
And keep in mind that if your charged-off account goes unpaid, either the original lender or the debt collection company that bought your debt may attempt to collect the debt from you.
Steps to remove an accurate charge-off from your credit report
It’s not always possible to remove an accurate charge-off from your credit report, but it’s worth trying. These steps might work for you:
1. Determine the details of the debt
First, you’ll need to collect all the charge-off debt details. This includes who owns the debt, how much it is and how old it is. You’ll need to negotiate with the entity that owns the debt. If your debt has been passed on to a collection agency, you won’t be able to negotiate with the original lender.
2. Try to negotiate a pay-for-delete arrangement
If your debt is still with the original lender, you can ask to pay the debt in full in exchange for the charge-off notation to be removed from your credit report. If your debt has been sold to a third party, you can still try a pay-for-delete arrangement. The debt owner still wants to collect their money, so they might be open to a pay-for-delete arrangement.
If your debt is now sitting with a collection agency, it can work to your advantage. A debt collector can pull your credit report and see if you have ways of paying off the debt, such as a credit line or an available balance on a credit card. This is a strong motivator for the debt owner to work with you.
Additionally, you can assume that if a collection agency now owns your debt, they bought it for a fraction of the total amount. This means they’ll potentially be willing to accept less than your total debt amount as payment.
When you’re negotiating, some financial experts suggest offering just 25 percent of your original debt if you have a large sum. The collection agency might push back and ask for more, but you can begin negotiations and settle on an amount you deem fair (and can afford). If you have a small balance, such as $500, it’s more likely that you’ll have to pay the full amount to the collection agency.
Note that there are pay-for-delete letter templates you can use, though they aren’t guaranteed to work. These letters may have a higher likelihood of success if someone with authority sees them. Don’t address your letter to a general department or public correspondence address. Instead, do some research and find the name of a manager or someone high up who has the power to act on and approve your request.
3. Get any agreement in writing
A pay-for-delete arrangement is legal under the Fair Credit Reporting Act. However, the lender isn’t legally obligated to honor the request and remove a charge-off from your account. So, while you may ask for the arrangement, the lender can say no.
For this reason, you want to ensure you get the pay-for-delete arrangement (or any other agreement) in writing. You should get the details of the arrangement written out on the company’s letterhead. This includes the amount you’re going to pay, that you won’t owe any more after you make the payment and that the creditor intends to remove the charge-off from your credit reports.
What if the charge-off is inaccurate?
Check your credit report(s) to see if the details of the record are accurate—if some of the information is wrong, you can dispute it. Incorrect information can include the dates related to the debts or missed payments, the total amount owed, the account number, the creditor name, the borrower name and more.
When you dispute inaccurate information with a credit bureau, they typically pass along the dispute to the company that initially reported the data. That company usually has about 30 days to prove the details or the dispute can be settled in your favor and the charge-off can be removed from your credit report.
You can file a dispute yourself, but many consumers choose to get professional help with the process. Credit repair companies like Score Revive know what information to include in a dispute to increase its chances of being approved.
A charge-off can have enormous consequences for your credit for many years. If you’re dealing with a charge-off, you need to act quickly to resolve it. The sooner you start discussions about settling the problem, the less impact it might have on your overall credit.