How to Remove a Charge-Off From Your Credit Report - SmartAsset

It’s not always easy to keep up with your finances. Sometimes one late payment turns into two or three. When creditors feel that you’ll never repay them, they often close your account and send your debt to a collection agency. This is known as a charge-off. If you’ve landed in this predicament, you can still get out of it. However, your finances will still be affected and fixing it will take some work on your part.

Consider working with a financial advisor to modify or create a personal budget and manage debt.

What Is a Charge-Off?

A charge-off is what happens when you fail to make payments for several months in a row on a loan or credit card. Essentially, the creditor records that debt as a loss in its books and closes your account. It does this because it’s come to believe that you won’t ever repay the debt.

However, that doesn’t mean it’s forgotten. Even though your account is closed and the creditor reports it as a loss, you must still pay back what you owe. At this point, creditors send a delinquent debt to a collection agency. The collection agency will then continue to hound you for money. Unluckily for you, all of this activity is reported to credit bureaus which then reflects negatively in your credit report.

A charge-off adversely affects your credit score pretty heavily, sometimes by more than 100 points. All your missed payments, a closed account and the debt sent to a collection agency showcase bad credit behavior. You’ll want to avoid charge-offs, especially if you have a higher credit score. Usually, the higher your score, the more you have to lose from bad credit behavior.

A charge-off remains on and affects your credit report for seven years. This makes it less likely for other creditors to extend favorable lines of credit to you. Unfortunately, that can mean higher rates and payments and more money spent over the life of your loan. Often, you won’t even qualify for loans, like mortgages, with a charge-off or other outstanding debts on your report.

How to Remove a Charge-Off From Your Credit Report: Negotiate It

If you’ve ended up with a charge-off on your credit report, it’s not the end of your financial world. There are steps you can take to lessen the harm it does to your credit. For one, you should start by making sure the charge-off is accurate. Unfortunately, mistakes are often made when it comes to credit reports. Because of this, a charge-off could end up on your credit report when you don’t even have a delinquent account. Other times, a charge-off can remain on your report even after seven years have gone by. In that case, you’ll want to contact the creditor and the credit bureaus to have it removed.

If the charge-off exists on your report a result of your own error, you have a few options. One option is to scour the charge-off entry for any mistakes. If even the smallest detail is incorrect, you can dispute the whole entry. This includes account numbers, names, addresses, etc. If you find an error, you can dispute the entry with the credit bureaus and the creditor to have it fixed or removed. If they cannot verify a piece of information, the whole entry must be removed. You’ll want to keep records of the errors and all your correspondence. If the creditor agrees to remove the entry, get the information of everyone you speak to and when you spoke to them. Be sure to obtain that agreement in writing as well.

You will also want to check whether the amount you owe in the charge-off entry is correct. Perhaps you made a payment that lessened your debt, but wasn’t reflected in your credit report. Other times, collection agencies can add on extra fees or interest. Sometimes your report can list the same charge-off, but as due to multiple collection agencies. This is because your debt has been sold and moved around, but you only need to pay one company. In any case, contact the original creditor to make sure the entry reflects exactly what you’ve paid, what you owe and who you owe it to.

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How to Remove a Charge-Off From Your Credit Report: Pay It

Sometimes creditors won’t remove a charge-off from your credit report. In that case, you may have to pay it. However, this doesn’t mean you always have to pay the full amount in one go. For many people, paying the full amount isn’t even feasible.

In an interview with SmartAsset, Tiffany Aliche, the personal finance blogger behind The Budgetnista, advised that when paying off debts, you should be honest with the creditor.

“Giving them a call to say what you can do” is better than ignoring the debt, she says. For example, if the creditor is asking for $300, but you can only pay $60 a month, a creditor may just take that deal. If they don’t, “sometimes you just have to hang up and speak to the next one,” Aliche said.

If you do have the funds to pay off the entire debt, that may be your best bet at getting it removed. Creditors are usually more willing to remove a charge-off when you can pay more rather than less of the debt. This is known as “pay for deletion.” Again, you should ensure you speak with someone with your creditor’s company who can delete the entry. Before you pay anything, you should receive the agreement in writing. You have a lot to gain from paying the charge-off sooner rather than later, to prevent a prolonged weight on your credit score.

Keep in mind that when you pay a charge-off in full, that doesn’t necessarily remove it from your credit report. You may have to request and argue your case to have it removed. Otherwise, it will remain on your report as a “paid,” “closed,” or “settled” charge-off. You may also ask your creditor to “re-age” your debt. This will make it look as though you paid off the debt earlier than you did.

How to Remove a Charge-Off From Your Credit Report: Wait It Out

If none of the above strategies have worked on your creditor, then you can wait it out. Charge-offs can remain on your credit report for up to seven years. Once that time frame is up, it must be deleted. Certainly, having such a negative entry on your credit report for seven years isn’t ideal. But as time goes on, the weight that it has on your score lessens a bit. Its existence on your credit report will still limit your access to big loans, though.

The Bottom Line

You are responsible for your debts, no matter how far behind you’ve gotten. Ideally, you’ll avoid falling so far into debt that a creditor sends your account to collections as a charge-off. But should you land yourself with a charge-off, it’s important you work to remove or lessen its harm as soon as possible. Contact your creditors and the credit bureaus directly and immediately, keeping records of everything. Otherwise, you could be barred from getting a mortgage or auto loan for seven years.

Tips for Managing Debt

A financial advisor can offer valuable insight and guidance on debt management. Finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Be sure to make payments on time and in full as much as possible. That way, you don’t add on more and more to what you owe. If you need help making a payment plan, online debt calculators can lead you in the right direction
If you’ve not yet reached a charge-off, you may want to look into a balance transfer card. This allows you to transfer a loan balance to the card that has a time period where you can pay off your debts without a hefty interest rate.