What is a charge-off?
A charge-off occurs when you are seriously delinquent in paying an account. Typically, an item is only listed as a charge-off on a credit report once it’s over 180 days late. In simple terms, when one occurs, your creditor lists the account as not being collectible.
Creditors list bad debts owed as a charge-off primarily for tax reasons, so the amounts owed can be counted as a loss and tax write off for them.
Although your creditors consider the item a loss for tax purposes, they still expect the debt to be paid off entirely.
If you have a charge-off appear on your credit history, creditors can still try to collect on the debt. They will often involve a third-party collection agency to collect the money owed.
How long do charge offs stay on your credit report?
Having charge-offs on your credit history can dramatically impact your credit scores.
If you have even one on your credit report, more than likely you will be declined for most loans as they are one of the worst items to have on your credit history. However, it’s possible to have a charge-off removed before the seven-year mark.
Want to Remove Charge Offs from Your Credit Report?
Will paying a charge off increase my credit score?
A paid charge-off is better than an unpaid charge off and may increase your credit scores slightly. However, even a paid charge off counts as a blemish and will still negatively affect your credit for seven years.
While the direct impact on your score lessens over time, potential creditors can still see it listed. This can ultimately hurt your chances for credit approval and competitive interest rates.
Plus, there are many implications of paying a charge-off based on its age and other factors. Review the pros and cons of paying a charge-off before you make a decision.
When You Should Pay a Charge-Off
If the Charge-off is Recent
If the charge-off is very new, you are likely to see a big dip in your credit scores – and the higher your score, the bigger the dip. While a charge-off may take 20 or 30 points from someone with a low score, for someone with a higher credit score, a charge-off can cause the score to drop 100 points!
This can mean the difference between qualifying with excellent rates and not qualifying at all for some types of loans.
If possible, make arrangements to pay the charge-off on the condition that it is removed from your credit file entirely. This is typically easier when the charge-off is new and you are dealing with the creditor’s in-house collection team.
To Qualify for a Home Loan
It is fairly common practice in the mortgage industry to require that all outstanding debt be cleared before a loan can be approved. This includes late payments, judgments, liens and charge-off accounts as well.
If the charge-off is very old, you may be able to negotiate a partial payment to get the debt settled, but always verify with the lender if a partial payment is enough to satisfy their lending requirements.
If the Creditor Will Delete/Re-age It
Some creditors will delete a charge-off from your credit file if you make the payment in full. However, not all creditors will do this, and some will claim that it isn’t possible, though this is not the case.
You may have more luck asking them to “re-age” the account, however. In this instance, it would reset the timer on the payments and essentially your payoff would look like you settled the debt in a timely fashion.
As you can see, there are several scenarios where paying a charge-off is the best option, and they all hinge on the assumption that the charge-off is actually yours and you have verified the amount of the charge-off is correct.
If you have not verified that the debt is actually yours and that the payment amount listed on the charge-off is accurate, you may be better off seeking professional assistance from a credit repair specialist before you commit to making a payment.
When You Should NOT Pay a Charge-off
If It’s Listed by Multiple Companies
It is all-too-common in the third-party collections business for debts to be sold and re-sold with very little (if any) documentation. If you see the same charge-off account listed several times with multiple different collection agencies, it is worth it to have each agency verify the debt before proceeding further.
Confirming who actually owns the debt will ensure that you don’t pay an unscrupulous debt collector who will take the money even if they no longer own the debt.
You Aren’t Sure You Owe the Amount Listed on the Charge-Off
Sometimes debt collectors try to tack on bogus fees and interest. Unless the agreement you signed with the original creditor stipulates that a third-party debt collector can add their own fees and interest, they cannot do this.
It is also possible that you paid off the debt, but due to an error in the system, your account was flagged as a charge-off. If you have any proof that the debt was paid, you absolutely should not pay a charge-off.
However, even if you don’t have proof, having the debt verified may still work in your favor. A professional credit repair specialist will be able to advise you on the best course of action if you aren’t sure how to proceed.
It’s Past the Statute of Limitations
This last scenario varies from state to state because collection laws are different. However, if the charge-off is past the statute of limitations, you have a built-in defense against having a judgment brought against you for non-payment.
The catch is, you must go to court and defend yourself against any lawsuit brought by the collection agency.
Most collection agencies don’t bother filing a lawsuit if your debt is past the statute of limitations. Some people choose not to pay and instead let the charge-off drop from their credit file after the federal reporting period expires.
This doesn’t help your credit in the short term, but it can save your finances if you are trying to pay down debts on currently open accounts.
Can a charged off account be removed from my credit report?
Yes, there are several ways to have charge-offs removed. One way is by negotiating a “pay for delete” with the creditors.
Many times creditors do not want to bother with this and chances are they’ve already sent the account to a collection agency, but sometimes they are willing to negotiate.
While you can do the negotiating over the phone, it’s best to have all correspondence in writing.
Another way is by disputing the account with the credit bureaus. By law, the Fair Credit Reporting Act (FCRA) allows you to dispute any items that you find questionable. Once the credit bureaus receive a dispute, they contact your creditor and give them 30 days to verify the account.
If they can not verify the account for any reason, it must be taken off your credit report. There are actually many reasons that they can not or will not verify the account.
You can dispute charge-offs by writing letters to the credit bureaus or you can hire a professional credit repair company to handle the tedious legwork for you.
How can I delete charge offs from my credit report?
Getting a charge-off removed from your credit report can make the difference between qualifying for a loan for a house or car, and not qualifying for financing of any kind.
Read the story below from one of our readers (and check out the photos for proof) to see how it can be done.
How I Learned About Credit the Hard Way
A few years back, I suffered some difficult times in my life. The company I worked for went under and I lost my job as a result. My bills, including some medical charge offs I had from an injury, got out of control and I could no longer meet my financial obligations.
After a while, my accounts were all charged-off and I started getting calls from debt collectors.
The phone calls were incessant and it caused me a lot of hardship as they tried to collect. Finally, I declared bankruptcy to escape, but my credit suffered the consequences.
How I Took Control of My Credit Score
For the next several years, I couldn’t qualify for a home loan, auto loan, or almost any form of credit because my credit score was so low. Being rejected again and again for financing was an embarrassing process.
A buddy of mine referred me to Lexington Law and told me that they were a great company to work with. I was unsure if I should trust him initially, but he showed me how they had helped him, so I decided to give them a shot. I checked out their website to see if it was for me.
How Lexington Law Helped Me
I called 1 (800) 220-0084 and I spoke with a lady who specialized in helping people repair their credit. She wasn’t judgmental at all and sincerely tried to understand my situation and help me as best she could.
I signed up with Lexington Law here and I’m really glad I made that choice. I saw results quickly when after only three weeks, I got my first letter in the mail saying that a negative item had been removed from my credit report. I got more letters after that.
My credit scores started to climb and after a while, I was finally able to buy a new home. I feel like it would have taken me much longer if it hadn’t been for the help of Lexington Law. Giving them a call was one of the best financial decisions I have ever made (see below).
Charge Offs Removed from My Credit Report:
– T.B., Lexington client
Several items have been deleted from my credit report and more importantly, my credit score has dramatically improved. I was recently approved for ‘best rate’ financing on a new car and a home construction loan. Thanks.”
– B.K., Lexington client
If you’re sick and tired of having bad credit, I recommend you visit Lexington Law Firm. They can dispute all kinds of negative items from your credit reports, including: bankruptcies, foreclosures, repossessions, charge offs, judgments, tax liens, collections, late payments and more.
Discount for Family Members, Couples, and Active Military!
Lexington Law is now offering $50 off the initial set-up fee when you and your spouse or family members sign up together. The one-time $50.00 discount will be automatically applied to both you and your spouse’s first payment.
Active military members also qualify for a one-time $50 discount off the initial fee.
Want to Remove Charge Offs from Your Credit Report?