Maintaining good credit requires financial discipline, and paying the bills on time is the number one advice credit repair experts give to their clients. The payment history has the largest impact on the credit score, and missing a single payment can deduct a huge chunk of your three-digit number.
To make things worse, a charge-off has an even more devastating effect on credit than a bill paid a few days past due.
If you want to learn more about charge-offs check out the guide below. It will tell you everything you need to know about them and how to remove a charge-off from your credit report.
What Is a Charge-Off?
When people apply for a credit card or a loan, they generally have every intention of paying back. Even so, sometimes, most often due to unforeseen circumstances, borrowers are unable to make their payments in time.
Missing a due date and being late with your payment for over 30 days will put your account in a delinquent status. And if your account remains delinquent for a longer period (between 120 and 180 days, depending on the creditor), your debt will get charged off as bad debt.
In simple terms, your creditor will decide that you are unable to pay back what you owe and write off the debt as a loss and stop trying to collect it from you. However, this doesn’t mean you don’t owe anything to anyone anymore, and you are off the hook.
Quite the contrary, you will still be required to settle the debt, and in addition, your credit score will take a heavy blow. The creditor will sell the debt to a collection agency that will continue trying to collect it from you and potentially even take you to court if you don’t settle.
Does a Charge-off Hurt Your Credit?
A charge-off is one of the worst things you can have on your credit report. It is a major red flag for lenders and creditors who see it as an indication that the borrower is terrible at managing their debt.
Your payment history accounts for 35% of your credit score. A single late payment can potentially reduce your overall credit score by more than 100 points. By the time you get to the point of having your debt charged off, your delinquent account has already devastated your payment history and done a number on your credit score.
In accordance with the Fair Credit Reporting Act, credit bureaus can report negative items on your credit report for up to seven years. In other words, you will get limited loan options and unfavorable interest rates for a very long time. In extreme circumstances, a charge-off on your credit report can even disqualify you from getting a mortgage loan altogether.
Considering everything, the best thing you can do is to always pay your bills on time and never get in a situation where you need to deal with a charge-off on your credit report. There aren’t any tricks for removing charge-offs, and they are usually reported until they expire.
How to Remove Charge-Offs From Your Credit Report
Unfortunately, when dealing with a charge-off, you are left at the mercy of your creditor. All you can do is try to negotiate a charge-off removal by making a payment and persuading them to get the bureaus to stop reporting it.
The very first thing you should find out is if the debt is still owned by the original lender, or if it has been acquired by a collection agency. You must know who you need to negotiate with and who to ask to remove your charge-offs.
If the debt has been purchased by a collection agency, you may be in luck, as the original creditor is more likely to request you pay the total amount plus an additional pay-to-delete charge-off fee. Collection agencies usually buy debts at a discounted price, so they will be more likely to be satisfied with less.
You should also learn details about your debt, like exactly how much you owe and how long it is overdue, and consider them when deciding on your offer. Remember, the creditor gains nothing by removing a charge-off, and if they accept removing it, it will be a favor, so you should make the best offer you can.
If the debt owner requests a pay-to-delete charge-off fee for removing your charge-offs, you should consider accepting it, as you will probably not get a better offer.
Once you make a deal you’re both happy with, make sure you ask the creditor to send the entire agreement in writing. They should explicitly state that you will not owe them anything anymore, they will not attempt to collect anything from you anymore, and they will get the charge-offs removed from your credit reports with all three credit bureaus.
How to Remove a Charge-off Without Paying
Getting a charge-off removed from a credit report without ever making a payment is next to impossible, and the credit repair specialist who promises you that is lying to you.
The only reason for a credit bureau to remove a charge-off without payment is if the charge-off shouldn’t have been reported in the first place. Sometimes credit bureaus make mistakes and may include negative items on our credit report that don’t reflect the actual situation by error.
In such cases, you will need to contact the credit bureau that has made the mistake and dispute the credit report with them.
Create a copy of your faulty credit report, and highlight the false charge-off on it. Write a letter or an email stating that you dispute the credit report, and explain what the error is. State that you request a charge-off removal as the item is causing a negative effect on your credit for no reason. Finally, collect bank statements and other documentation that you can use as evidence that the charge-off on your credit report is a mistake and send it with the letter.
Credit bureaus are obligated by law to investigate your dispute and make corrections in 30 to 45 days.
The Bottom Line
Getting a charge-off removed from a credit report is quite difficult and may not always work, but there are many other ways to repair your credit by yourself. If you think you are great at fixing and maintaining strong credit, you can even try to become a credit repair specialist.
On the other hand, if you would much rather have professionals do it for you, you can always rely on reputable credit repair companies to take care of your credit.
FAQs
How does a charge-off affect your credit?
A charge-off is the result of a late payment overdue for a few months, and as such, it can have a devastating effect on your credit.
How long do charge-offs stay on credit reports?
Federal laws limit the reporting of charge-offs up to seven years from the original due date.
Can charge-offs be removed?
There is no guaranteed method for removing charge-offs when they are valid. The only way is to negotiate an agreement with the creditor and get them to accept a charge-off removal of their own volition.
Charge-offs reported by an error, on the other hand, can be disputed with credit bureaus and removed without too much difficulty.
