How to Get a Charge-Off Removed from Your Credit Report
January 3, 2022
Remove Charge-Off’s from Your Credit File
Many people enter situations that render them unable to pay off debts. In the third quarter of 2021, delinquency rates for consumer loans reached 1.52%. Once a loan gets the delinquent status, you may receive a charge-off.
A charge-off on credit reports suggests that you are a high-risk borrower to lenders. As a result, you may struggle to get loans or credit cards.
If you are in this financial situation, you need to learn:
What is a charge-off?
How do charge-offs affect your credit score?
How to remove a collection charge-off
What Is a Charge-Off?
According to the Merriam-Webster dictionary, the charge-off meaning is to treat something as an expense or loss. When it comes to finances, charge-offs are debts that your creditor will likely never receive. Debt becomes a charge-off when the borrower is delinquent for a specific amount of time.
However, charge-offs do not mean your debt gets written off entirely. It has severe implications for your credit report and borrowing capabilities.
Typically, charge-offs occur when a creditor finds your debt uncollectible. After around six months (180 days) of not paying, they can determine that you have a delinquent account. During this period, payment after charge-off collections that fall beneath the minimum repayment amount can also constitute non-payments.
Once a lender charges off your debt, they can sell it to third-party collection agencies that will try to collect on your account. You continue to owe this debt until:
It gets settled
You pay the debt
You are discharged by a bankruptcy process
Your debt surpasses the statute of limitations in age
Charged Off Account Meaning
A charged-off account means your lender wrote off your account as a loss from their receivables. This account gets closed and cannot receive any more charges, but you still owe the debt.
What Does Charge-Off Mean For You?
You get a charge-off on your credit report when a creditor deems your debt as uncollectible. The consequences of a charged-off account include:
Lower credit score
Challenges in getting credit approval
Loans with staggering interest rates
Still owing the debt
Increasing debt levels
Your credit score can continue to decline from:
Creditors selling your debt to a collection agency
Charge-offs detriment your credit report because they show lenders that you are not a trustworthy borrower. They can keep your credit score low for many years, even if you pay off the debt in full.
What Does Charged Off as Bad Debt Mean?
Getting charged off as bad debt means your account gets marked as a charge-off. When you don’t make the minimum payments for 180 days, your debt gets labeled as a loss asset. A loss asset is a bad debt since it is essentially uncollectible.
How Long Do Closed Accounts Stay on Your Credit Report?
How long do closed accounts stay on credit reports? The answer is always seven years. It doesn’t matter if you have a charge-off paid in full vs. settled — it remains in your credit history. Instead, you will get a “charge-off paid” or “charge-off settled” status on the report.
Note: Some credit lenders will restart the timeline on your debt if you respond to calls or emails or make an effort to pay part of it.
What Does Closed Account Mean on Credit Report?
Just because you have a closed account on your credit report doesn’t mean you have a charge-off. An account closed by a credit grantor can happen for multiple reasons, including:
Account paid off
A mistake from the credit bureau
Refinanced a loan
Closing accounts can increase your credit utilization rate, which might lower your credit score. The closed account can stay on your report for ten years, depending on the reason.
If you have a closed credit card account with a balance, you still need to pay off the debt. Based on the age of the account, you could have a credit score increase after the charge-off gets removed. Older charge-offs will have a more minor effect than newer ones.
What Happens to Unpaid Credit Card Debt After 7 Years?
After seven years, unpaid credit card debt won’t get reported by credit reporting companies. However, they might keep this data on file for two exceptional cases:
You apply for over $150,000 worth of life insurance or credit
You apply for a job with an annual salary higher than $75,000
Don’t think that your debt gets erased after this period. You will still owe your creditor, even if your credit report does not reflect that.
The debt collectors can call, send mail, and garnish wages to receive their payment. If your state’s statute of limitations exceeds seven years, the lender can still sue you.
Regardless, one way to get charge-off removed from your record is by waiting seven years.
Should I Pay Off Closed Accounts on Credit Report?
If possible, you should pay off your charged-off accounts. The debt remains your legal responsibility even when the creditor stops actively trying to collect your debt. Not paying the debt gives your lender just cause to sue you within the statute of limitations.
Furthermore, the debt will continue to negatively affect your credit score until the seven years pass. Paying it off before this period will make your account look more favorable to lenders, aiding you in borrowing.
VantageScore won’t include a zero-balance charge-off in your credit score calculation, so your score will increase.
While you can’t get a charge-off removed by paying the amount, you can reduce its effects on your credit score before the seven-year period passes.
Should I Pay a Charge-Off in Full or Settle?
If possible, you should pay your charge-off in full. On your credit report, you will get a designation that you have paid in full, which most lenders will view as favorable. Settling indicates that you borrowed more than you had and partially paid the debt.
Nevertheless, a settled account is better than one with no payments towards it. If you want to reduce the effects of a charge-off before it gets removed from your report, pay as much as you can.
How to Remove Charge-Off from Credit Report
Follow these steps if you want to remove a charge-off from your credit report.
Discover Information About the Debt
Start by determining who owns the debt currently. Sometimes, the original lender will sell the debt to a third party. You will need to perform your negotiations with this creditor, not the original one.
Debt collectors need to tell you who owns the debt so that you can make an arrangement with them. Third-party collection agencies often buy debt for a fraction of the balance. As a result, they are more likely to settle for less than the original value.
Next, look into more information about the debt. Research its age, the balance, and if your creditor believes you can pay. The debt collector can research your credit report to see if you have an available balance on an open credit card.
Try to Settle
If you want to remove negative items from your report, offer to pay some or all of the debt. You might not need to pay the entire balance for an older charge-off.
Start negotiating at 25% of what you owe and increase as necessary. If your creditor resists your offer, stay persistent until you reach a deal. Keep in mind that smaller balances will likely require full repayment.
A pay-for-delete agreement means that the debt collectors will wipe the charge-off from your report if you pay some or all of the balance.
This arrangement can remove the charge-off years before it would automatically. However, you will likely only have this option if you have not paid the balance yet.
If you are working with the original lender, you will more likely need to pay the debt in full. However, they can remove the charged-off account from your record so that you can improve your credit score.
Third-party debt collectors might be more lenient in accepting a fraction of the balance. Since they can see if you have credit available, they will likely ask for something in line with what you have available.
Remember that these agreements are rare. While the Fair Credit Reporting Act makes pay-for-delete arrangements legal, the lender has no legal obligation to offer one to you. Nevertheless, they occasionally happen, so it is worth a shot with your debt collection agency.
Ensure you get your arrangement in writing before paying the debt collector. They will need to honor the agreement if you have written proof. If possible, try to get this arrangement written using the company’s letterhead so that they cannot claim you plagiarized it.
Write how much you will pay, how the payment means you don’t need to pay more, and the creditor will remove the record from your credit reports.
If they try to file a suit against you, a written agreement will further prove your case. Also, make sure you do not give the lender access to your spending accounts.
Work With a Professional
Some companies specialize in getting negative items removed from your credit report. If you have a charged-off account and need expert guidance, you can turn to a credit repair company. These organizations offer free consultations to see how they can help you.
Remember that you might need to pay them several hundred dollars to remove the charge-off from your credit report. You will have long-term benefits from your improved credit score, and you might save compared to paying the outstanding balance.
The credit repair company will search for any questionable or false information on your report. They will file disputes to try to remove the charge-off from your account. If the first dispute fails, they will keep trying.
However, the company cannot guarantee that the charge-off will get removed. They will tell you this upfront, but you will still need to pay fees for sending and tracking credit disputes for you.
Dispute the Record (How to Remove a Charge-Off Without Paying)
Companies can report how you pay bills to credit bureaus. These credit bureaus gather information from multiple sources to create a credit report. Then, the bureau will sell the report to others. Potential lenders will view our credit report to determine if they can perform business with you.
If you can’t afford the balance and asking the creditor to make a deal doesn’t work, you can try this method. Start by getting a copy of your credit report from credit bureaus like Experian, Equifax, and TransUnion on a credit reporting site.
Look for the charge-off entry and analyze it thoroughly. See if you can find any inaccuracies that you can dispute. If you were wondering how to remove a charge-off without paying, this is one way. Make sure to check information like:
Payment or missed payment dates
Total amount owed
You can write letters to each of the three credit bureaus that detail the inaccurate data. If they cannot verify the entry with the credit reporting agency, they will either correct or remove the charge-off. Keep in mind that this method only works if the credit reporting agency makes an error.
According to the Fair Credit Reporting Act, you can dispute the validity of any part of your credit report with a credit reporting agency. After you file your dispute, the agency you filed with has 30 days to look into your filing.
The credit bureau will pass this dispute to the company that reported the information. In about 30 days, the company needs to verify the data. If they fail to provide proof in this period, the dispute might get settled in your favor. If you get a dispute resolved as reported by the grantor, you probably will not have your charge-off wiped as they verified the information.
Sample Letters to Remove a Charge-Off From Your Credit Report
One of the most effective ways to remove a charge-off from your credit history is through a written letter. That way, you can ensure that you have written proof of any agreements while guaranteeing that you include all necessary information. Depending on your situation, you can choose one of these sample letters.
Write your letter respectfully and explain why the agency should remove your charge-off. If you believe the charge-off is a mistake, the result of a misunderstanding, or you had any extenuating circumstances that prevented you from paying the debt, explain it in a respectful and non-aggressive tone.
Sample Letter for a Pay-for-Delete Arrangement
This template is an example of a generic letter outlining your offer.
<Your account number>
I’m writing to address a debt for the account under <your name and account number>. I would like to settle the debt and hope we can reach an agreement.
I am offering to pay <amount> to settle the debt and hope that you can remove the charge-off from my account with all of the credit bureaus in return.
If you agree to remove the charge-off status from my account and with the credit bureaus, please respond within 14 days in writing with our agreement, and notify any collection agencies that the debt has been settled.
Sample Letter for a Dispute
<Your account number>
I’m writing to address a debt for the account <your name and account number>. I have found a mistake on the credit report that I would like to dispute. The <mistake on the credit report> is inaccurate. It should instead state <correct information>.
I would like you to remove this illegitimate charge-off from my account. If you amend the information, I am willing to renegotiate for a settlement.
Whether you agree to remove the charge-off status from my account and with the credit bureaus or amend the information, please respond within 14 days in writing with our agreement. Also, please notify any collection agencies that the debt has been settled.
It’s easy to get charge-offs confused with other aspects of your debt. Read through these comparisons to understand the differences between these markings on your credit report.
Charge-Off vs. Collection
You might face a charge-off when you do not make the minimum payments on a loaned sum of money for six months. The financial institution believes you will not pay them back, so they write you off as a loss. You still need to pay this debt, and you cannot use a credit card. The creditor will try to collect on the loan.
If you fail to pay, the creditor will likely sell the debt to a collection agency that files a collection on your credit report. Then, you will have a collection and a charge-off on your account as you have both of these negative items on your credit report.
Failure to respond to the collection agency might lead to them selling your collection to a separate collection agency. This sale will result in a new collection on your account.
You will have to wait seven years for the credit bureaus to remove a collection from your credit report as with charge-offs. You could also negotiate with the creditor. However, having both a collection and a charge-off on your account will likely mean that you need to pay the debt in full.
Charge-Off vs. Cancellation of Debt
Many people believe that a charge-off means their debt gets canceled. After all, if the creditor finds your account delinquent, they do not expect payment. However, you still need to pay your debt when you get a charge-off. Failure to pay will result in collections accumulating on your account until you leave the statute of limitations.
Canceled debt is the fraction of the debt you owe to a creditor. If a creditor cannot collect this amount, they might cancel it. When your debt gets canceled, you do not have to repay it. Nevertheless, you might still need to pay taxes on this amount.
You have to pay income tax on it since you got the value you owed for free. Generally, you will pay taxes for any canceled debt that exceeds $600. You file this on your tax return using a 1099-C form to the IRS. Filing for bankruptcy means you won’t get taxed on the debt.
Credit Card Write Off Loophole
There are several loopholes to write off credit card debt.
After exiting the statute of limitations, you can write off the debt if you have never paid or gotten a CCJ to pay.
File for bankruptcy
Use a debt relief order
Make a debt settlement offer
Create a monthly repayment plan through an individual voluntary arrangement
Here are some frequently asked questions about removing a charge-off from your account.
Does a charge-off hurt your credit score?
Yes, a charge-off will hurt your credit score. It will stop impacting the score if you negotiate with your creditor or wait seven years to remove it from your credit report.
Should I pay off closed accounts?
Yes, you should pay off closed accounts. That way, you can get a charge-off paid status that will have a lesser negative effect on your credit score. Paying some of the debt might also persuade the creditor to strike the charge-off from your account.
What happens when a credit card is charged off?
When a credit card is charged off, you can no longer use it. You will still owe the debt, and it will negatively impact your credit score.
No one wants a charge-off on their credit report. A charge-off negatively reflects your ability to repay debt, and it will significantly lower your credit score.
Because a charge-off will stay on your credit report for seven years, it’s imperative to know how to get a charge-off removed if it applies to your current situation.
Negotiate with the creditor and see if you can pay some or all of the debt in exchange for them removing the charge-off from your history. Also, check for any incorrect data on your report to see if you can dispute the charge-off.