When applying for any type of credit, lenders will review your credit history and credit scores before extending you credit to determine whether you’ll be able to pay them back. If they see a charged-off account on your credit report, it raises a red flag.
Fortunately, there are numerous ways to get charge offs removed from your credit report. First, we’ll explain what a charge off is, how it damages your credit score, and whether you should pay it or not.
What is a charge-off?
A charge-off usually occurs after several months of missed payments on a credit card or other type of debt. Typically, an item is only listed as a charge-off once it’s over 180 days late. In simple terms, when one occurs, your creditor lists the account as not being collectible.
Credit card issuers and lenders 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 creditors consider the item a loss for tax purposes, they still expect the debt to be paid entirely.
If you have a charge-off account on your credit report, creditors can still attempt to collect on the debt. They will often involve a third-party debt collection agency to collect the money owed.
How long do charge offs stay on your credit report?
Charge-offs remain on your credit report for up to seven years from the date the account was charged off.
Charge-offs can cause a significant drop in your credit scores. Just having one charge off on your credit report will more than likely lead to being declined for credit cards or an auto loan, as they are one of the worst items to have on your credit reports. However, it’s possible to remove a charge-off before the seven-year mark.
Will paying a charge off improve my credit score?
A paid charge-off is better than an unpaid charge-off and may have a positive impact on your credit history. However, even a paid charge off counts as a blemish and will still negatively affect your credit score for up to seven years.
While the direct impact on your credit 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. So 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 score—and the higher your credit score, the bigger the dip. This is because a charge-off may only drop your credit score by 20 or 30 points if you already have poor credit history. However, it can cause a drop of around 100 points for someone with a higher credit score!
This can mean the difference between qualifying with excellent rates and not qualifying at all for some types of loans.
If possible, make payment arrangements in exchange for having the charge-off removed from your credit report entirely. 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 Qualify for a Home Loan
It is fairly common practice for mortgage lenders to require that all outstanding debt be cleared before getting approved for a loan. This includes delinquent payments, judgments, liens, and charge-offs as well.
If the charge-off is old, you may be able to negotiate a partial payment to get the debt settled. However, always verify with the lender if a partial payment is enough to satisfy their lending requirements.
If the Creditor Deletes/Re-ages It
Some creditors will remove a charge-off from your credit report if you pay the full amount. However, not all creditors will do this, and some will claim 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 account in a timely fashion.
As you can see, there are several scenarios where paying a charge-off is the best option. They all hinge on the assumption that it is actually yours, and you have verified the amount is correct.
If you have not verified that the debt is actually yours and that the payment amount is accurate, you may be better off seeking professional assistance from a credit repair specialist. Give them a call 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 for debts to be sold to a third-party debt collector and then re-sold by them to another debt collector with very little (if any) documentation. Therefore, if you see the same charged-off account listed several times with multiple collection agencies, it is worth it to have each debt collector verify the debt before proceeding further.
Confirming who actually owns the account 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 a collection agency will attempt 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 balance, but your account was flagged as a charge-off due to an error in the system. If you have any proof that the balance was paid, you absolutely should not pay it.
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 debt collectors don’t bother filing a lawsuit if your debt is past the statute of limitations. Some people choose not to pay the debt and instead let the charge-off drop from their credit report after seven years.
This doesn’t help your credit score in the short term, but it can save your finances if you are attempting to pay down debts on currently open accounts.
Can charged-off accounts be removed from my credit report?
Yes, there are several ways to remove charge-offs from your credit report before the credit reporting period of seven years.
Pay for Delete Agreement
One way to remove a charged-off account is by negotiating a “pay for delete” arrangement with the original creditor. With the pay for delete method, you convince your creditor to remove the charge-off from your credit report in exchange for payment. They may even be willing to report the account as “paid in full.” But, of course, the pay for delete method only works for unpaid charge-offs.
Many times creditors prefer not to bother with this. Chances are they’ve already sent the account to a collection agency, but sometimes they are willing to negotiate. While you can negotiate over the phone, it’s always best to get the agreement in writing before sending payment.
Dispute the Charge-Off
Another way to remove a charge off from your credit report is by disputing it with the three credit bureaus, Equifax, Experian, and TransUnion. By law, the Fair Credit Reporting Act (FCRA) allows you to dispute any items that you deem to be questionable. Once the credit bureau receives a dispute, they contact your creditor and allow them 30 days to verify the account.
If your creditor cannot verify the account for any reason, they must remove the charge off from your credit report. There are actually many reasons that a creditor can not or will not verify the charged-off account.
Under the FCRA, you are entitled to one free credit report from each of the three major credit bureaus every 12 months. Once you have your credit reports, you can dispute charge-offs by writing letters to the credit bureaus. However, many people choose to hire a professional credit repair company to handle the tedious legwork because they have many years of experience.
What is the best way to remove 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. Future lenders want to see that you pay off your debts. This is where hiring a credit repair company can really make a difference.
Credit repair services help clients remove charge-offs on their credit reports by disputing errors with the credit bureaus on their behalf. This means you don’t have to contact any of the credit reporting agencies or collection agencies yourself directly.
Credit repair companies also handle all the tracking necessary to ensure that each collection agency and credit reporting agency complies with the FCRA. Moreover, they make sure your credit report does not contain errors like account re-aging and multiple listings for the same collections account.
If you aren’t sure where to start regarding disputing charge-offs on your credit reports, talk to one of their credit repair professionals and get your questions answered. You can do it on your own, but you’re likely to have more success by enlisting professional help.
They offer a no-obligation consultation to explain what they can do to help in your particular situation.
Charge Offs Removed
If you’re struggling with bad credit and want to learn more, consider a free credit consultation with Lexington Law Firm. They can dispute all kinds of negative items from your credit reports, including bankruptcies, foreclosures, repossessions, charge-offs, collections, late payments, and more.
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