How to Remove a Charge-Off from Your Credit Report

Have you recently applied for credit, only to get turned down because of a charge-off that’s dragging your score down? Or maybe you recently reviewed your credit report and realized that a charge-off was there that you had no knowledge of beforehand. Either way, you want it removed promptly because it’s tainting your report, keeping your credit score in the trenches, and preventing you from qualifying for the most competitive financing offers on the market.

Keep reading to learn how charge-offs come about, how they impact your credit score over time, and what steps are needed to get them emoved from your credit report.

What is a charge-off?

A charge-off is reported on your credit report once an account reaches 180-days delinquent. This is also the point at which the creditor writes it off their books as a bad debt and turns it over to a collection agency.

Although the creditor or lender takes a hit to their books, they write the bad debt off to derive two key benefits:

  • The ability to write the outstanding amount off as a loss on their books
  • The possibility of still being paid, even if it’s only a portion of what they’re owed, after the account is written off

How does a charge-off impact your credit score?

Charge-offs can do major damage to your credit profile. Since they are one of the most impactful items that can appear on your credit report, your scores may plummet significantly.

Not only will a charge-off tank your score, but you may also find it harder to qualify for credit cards and loan products. And the products you do qualify for will more than likely be accompanied by exorbitant interest rates and less favorable financing terms.

Does paying off a charge-off boost your credit score?

Unfortunately, paying a charge-off will not make it magically disappear from your credit report. Instead, the creditor will update the status to paid in full or settled, and the account will remain until the seven-year window lapses. This also means it will continue to negatively impact your score until the negative entry is removed.

However, the older the charge-off, the smaller the impact on your credit score. But if you can get the creditor to delete the negative entry in exchange for payment, your score may increase. More on that shortly.

Should you pay charge-offs on your credit report?

It depends. If the creditor won’t agree to a pay-for-deletion or you’re close to the seven-year window being up, it may be worthwhile to wait it out. However, there are cases in which it may be a good idea to pay charge-offs on your credit report.

The case for paying charge-offs

Although your credit score may not skyrocket overnight, paying charge-offs could increase your approval odds for debt products by making you look more favorable in the eyes of creditors. In other words, you may be able to plead your case for being approved by explaining that you went through a rough patch but have taken the necessary actions to take care of past outstanding obligations.

Furthermore, paying the charge-off demonstrates that you have assumed responsibility for the financial misstep and are committing to better managing your finances in the future.

A few more key reasons for paying charge-offs:

  • The creditor has agreed to a pay-for-deletion, which means they will delete the account altogether once they have received the total outstanding amount in full or the settlement amount agreed on. (Note: always get these agreements in writing or you may find yourself chasing the collection agency or creditor after the fact to make them follow through on their promise. Also, keep in mind that their primary concern is collecting what’s owed and they’ll play nice guy until that’s done. So, it’s best to think a step or two ahead and cover your tracks with a paper trail).
  • You’re trying to buy a home and the mortgage company won’t approve the application until the charge-off is taken care of. You may be able to retrieve a preapproval for a new home purchase with an unpaid charge-off present on your credit report. But getting the loan closed with it still on your report will be practically impossible as most mortgage companies play by this rule. So, you should call and offer to settle the account so the status of the charge-off can be updated on your credit report.

But before remitting payment, contact the information furnisher and ask that they provide proof that you actually owe the debt. Remember, the credit bureaus must respond to your request or the item must be deleted. And if the charge-off is not yours, file a formal dispute to have it removed.

The case against paying charge-offs

There are instances where you know you owe on a particular account that has been charged-off, but it may not be in your best interest to remit payment. Most importantly, if the statute of limitations has passed and the debt is no longer legally collectible, don’t bother paying it. Instead, file a dispute with the credit bureaus to have it removed.

Some additional reasons to not pay charge-offs:

  • The corresponding information listed on your credit report contains inaccuracies. Creditors and collection agencies can’t just report whatever information they want on your credit file and expect you to pay it. Per the Fair Credit Reporting Act, the contents must be complete, accurate, and verifiable, or it must be corrected deleted. And more often than not, you may find that all it takes is a dispute for the charge-off to be deleted because the collection agency does not have the proper documentation on hand to verify the debt.
  • The charge-off appears multiple times on your credit report. Imagine if you paid the charge-off through one of the five collection agencies listed on your credit report, only to find out that you still owe the money. This is not uncommon as old debts are sometimes sold over and over without the paper trail to prove you actually owe it. So, paying it off only makes the situation worse as you’ll be out of your hard earned cash and still feel the wrath of the charge-off on your credit report.

What’s the easiest way to have a charge-off removed from your credit report?

When dealing with charge-offs, there are three ideal ways to go about getting them removed.

File a formal dispute with the credit bureaus

If it’s an error, dispute it as such. But what if the charge-off doesn’t belong to you? Simply dispute it using the information found here (this hyperlink will accompany a future post titled “Credit Dispute Letters”). Problem solved.

You can also give a formal dispute a shot if the debt has been passed from collection agency to collection agency and you feel there’s a chance they don’t have the proper documentation to prove you actually owe it.

Work directly with the collection agency

The first step is to reach out and have them send you documentation proving you owe the debt. Next, request that they delete the account from your credit report in exchange for payment through a pay-for-deletion arrangement.

It may take a few tries, but it’s well worth the effort. But be sure to get the agreement signed and in writing.

Hire a reputable credit repair company

Prefer to let the professionals handle the legwork for you? If so, hire a reputable credit repair company and they will work on your behalf to get the charge-off removed sooner than later. Though there are no guarantees on the timeframe or if they’ll even get results, the likelihood of success is much higher considering they’re seasoned, trained professionals that are well-versed in dealing with charge-offs.

The bottom line

The presence of a charge-off on your credit report is not the end of the world. And by taking the proper steps or hiring a reputable credit repair company, you can have it removed sooner than later.

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