Once upon a time, you had stellar credit. But life happened and you hit some major bumps along the way that left your finances and credit score in shambles. Now that some time has passed and you’ve gotten your finances on track, you decide to take a look at your credit report to see where improvements are needed. And at first glance, you notice pesky charge-offs that are dragging down your score and need to be removed.
Is that even possible? Keep reading to learn more about charge-offs and how to have the best shot of having them deleted from your credit report.
What Is a Charge-Off?
A charge-off is an account that is over 180 days past due. Before becoming a charge-off, the creditor may report it as a late payment to the credit bureaus. But once it reaches what’s deemed as the point of no return by most creditors, they convert it to a charge-off and classify it as a loss on their end. This means that they not only anticipate not being able to collect on the debt, but they will write it off on their taxes to offset income.
But here’s the irony: despite the creditor’s ability to write off the debt and derive a tax benefit, you will still be on the hook for the debt. And in most instances, you’ll be hearing from a debt collector.
How Do Charge-Offs Impact Your Credit Report?
Unfortunately, charge-offs will linger on your credit report for seven years. And although the initial impact could be a drop of up to 100 points, with higher scores being hit the worst, your score will begin to bounce back over time if you manage other accounts responsibly.
Keep in mind that charge-offs are items you want to avoid like the plague as they look really bad on your credit report. So, you should strongly consider doing everything you can to have them removed if possible before the reporting timeline ends.
Will Paying a Charge-Off Make It Go Away?
Contrary to popular belief, paying a charge-off won’t automatically do wonders for your credit rating. While it may cause a boost, it will remain on your credit report until the reporting period lapses. However, the impact will dwindle as time passes if you continue to manage other credit items responsibly.
The good news is you may be able to have a charge-off removed from your credit report. More on that shortly.
Should You Pay a Charge-off?
Paying a charge-off may seem like the right thing to do when you’re trying to get your credit back on track. And if you’re morally compelled to do so, go for it. But there are some instances where it’s not ideal to pay off the delinquent debt.
The Case for Paying a Charge-Off
The creditor agrees to a pay-for-deletion.
A pay-for-deletion is an arrangement where the creditor agrees to remove the charged-off account from your credit report in exchange for payment. When negotiating with the creditor, be sure to inquire about the possibility of settling the account for less than what you owe. They may be inclined to acquiesce to your request if you agree to pay the agreed-upon amount in full. Most importantly, don’t forget to get the pay-for-deletion agreement in writing.
The creditor agrees to re-age the account.
No luck with the pay-for-deletion approach? Try requesting that the account be “re-aged” and settle the debt if they agree. It will still leave a mark on your credit report, but prospective creditors will get the impression that you settled the account sooner than later.
You can’t qualify for a mortgage.
Most mortgage lenders won’t approve you for a home loan until all delinquent debts, including charge-offs, are settled or paid in full. So if a charge-off hasn’t quite passed the reporting timeline and you need to get approved for a mortgage in a jiffy, it’s worthwhile to reach out to the creditor and determine if you can settle the account with a partial payment to satisfy the mortgage lender’s requirement. If not, you’ll have to come up with the entire balance or risk missing out on the opportunity to purchase a home.
The Case Against Paying a Charge-Off
You have no knowledge of the charge-off.
If the charge-off doesn’t belong to you, there’s no legal obligation to pay it. Simply file a dispute with the three credit bureaus- Experian, Equifax, and TransUnion– pleading your case to have it removed. You must receive a response in 30 days or the item will be removed. And since the creditor won’t be able to provide proof that you actually owe the debt or that it even belongs to you, the process should be relatively seamless.
You don’t owe the money.
Have you already paid the charge-off? Gather your documentation and send copies of it along with a dispute letter to the three credit bureaus to clear up any confusion.
The statute of limitations has passed.
This is the amount of time the creditor or collection agency has to go after you for the outstanding debt. And if this time has passed but you initiate a payment, you will reset the clock all over again and give the debt collectors another shot at pestering you to pay up.
The reporting timeline has lapsed.
Has it been more than seven years since the original date of delinquency? If so, file formal disputes with the credit bureaus to have the charge-off removed instead of remitting payment.
The charge-off is being reported incorrectly.
Credit entries must be accurate and verifiable. But if the charge-off is not being reported accurately, you have the right to file a dispute. The information furnisher can choose to revise the entry, but there’s also a chance they won’t respond to your dispute within the allotted 30-day window, which means the entry will be removed from your credit report.
The charge-off is listed with more than one debt collector.
It’s not uncommon for a charge-off to appear multiple times on a credit report if it’s been sold from collection agency to collection agency. But the issue is two-fold: only one may have the right to collect and even if you remit payment, the other entries will still appear.
So before taking any action, dispute all the entries with the credit bureaus to see what you get. All the entries may fall off if the debt collectors can’t prove that you owe them. But if the one you owe lingers and the statute of limitations hasn’t quite passed, request a pay-for-deletion. And if they aren’t hearing it, consider settling for less than you owe if you fear they’ll escalate collection efforts.
How to Have a Charge-Off Deleted from Your Credit Report
When attempting to have a charge-off removed from your credit report, you have two options.
The DIY Approach
As mentioned earlier, you can reach out to the creditor and request that they remove the negative item from your credit report in exchange for payment under a pay-for-delete agreement.
But if the item is reported incorrectly or you have no knowledge of it, a better option is to file a dispute with the credit bureaus. Items on your credit report that are inaccurate or unverifiable must be removed from your credit report under the Fair Credit Reporting Act (FCRA). And if it’s been a while since the charge-off first appeared on your credit report, the creditor may not even bother to respond to your dispute with the credit bureaus within 30 days, which means the item could be removed without much effort.
In the event the item is updated or verified and deemed as collectible, you can always return to the drawing board and try again with negotiating a pay-for-delete arrangement.
Hire a Reputable Credit Repair Company
Prefer to let the professionals do the heavy lifting? Consider hiring a reputable credit repair company that’s accredited and highly rated by the Better Business Bureau to do the legwork for you.
There is a monthly fee associated with the service, which can’t legally be assessed until after work is done under the Credit Repair Organizations Act (CROA). But if they can successfully have the charge-off removed, the investment will be well worth it.
The Bottom Line
By taking the correct actions, charge-offs can be removed from your credit report. And once you have success, it’s important to take the necessary actions to continue building and preserve the credit score you’ve worked so hard to attain.