How to Remove a Charge-Off From Your Credit Report
A charge-off is one of the worst items you can have on your credit report. A charge-off is what happens when you fail to make your credit card payment for several months - usually six months in a row. After several months of non-payment, creditor writes off the debt as a loss (in their own accounting books), cancels your account, and demands that you pay the past due balance in full.
By the time an account gets charged-off, your credit score has already suffered significant damage. Your credit card issuer may have also lowered your credit limit. If you applied for a credit card in the months leading up to your charge-off, your application may have been denied.
Once a charge-off is on your credit report, it will remain there for seven years from the date it was charged off. In total, the account remains on your credit report for seven and a half years. That's a long time to have such a negative entry on your credit report.
Charged-Off Doesn't Mean Forgiven
Don't let the name fool you. You're still responsible for paying a charge-off.
As long as the charge-off remains unpaid, the creditor can continue attempts to collect on the account and that may include suing you for what you owe.
Future creditors and lenders take charge-offs seriously, to the point that they may deny any future credit card and loan applications, so it’s in your best interest to remove charge-offs from your credit report. Negotiation is your best tactic for reducing the effects of a charged-off account.
Talk to the Creditor
Often, charge-offs are passed on to a third-party debt collector soon after the charge-off date. But, when it comes to charge-offs, it's better to deal with the original creditor (who reports the charged-off status) than a debt collector. A collector can’t do anything about what the original creditor reports to the credit bureaus.
You want to convince the creditor to remove the charge-off from your credit report in exchange for payment. Before you make the call, know how much you’re able to pay on the account. The more you can pay and the sooner you can pay it, the more negotiating power you have. If you can pay in full, you're in a better position to negotiate. Ask to speak to someone who has the authority to remove the charge-off from your credit report.
Let the creditor know you’re interested in paying the account and would like to make payment arrangements in exchange for having the charged-off status removed from your credit report. Speak politely and professionally. Avoid blaming the creditor, making excuses, or giving your life story. Keep it short and to the point. Best case, the creditor will agree to remove the charge-off from your credit report.
Sending a pay for delete letter is another way to negotiate a charge-off removal. The letter essentially asks the creditor to remove the account from your credit report in exchange for full payment. The key to a successful pay for delete letter is getting it in the right hands. Try to get the name and direct address of someone who works in the company, a manager or other higher-up employee, rather than sending your letter to general correspondence address.
Credit card companies are contractually bound to report credit information to the credit bureaus, so it can be difficult to get a creditor to agree to remove the charge-off from your credit report. Even so, some cardholders have been successful in making a pay for delete agreement.
If you can’t get the creditor to agree to remove the charge-off completely, try for something less negative like a simple “Closed” rather than "Charged-Off."
Get the Agreement in Writing
When the creditor agrees to remove the charge-off from your credit report, get the agreement in writing.
You can do this in one of two ways:
- Have the person you spoke with fax you a copy of the agreement on company letterhead.
- Alternatively, get the name, mailing address, and phone number of the person you spoke with. Send a copy of your agreement to that person via certified mail with return receipt requested. Request the person sign and return a copy to you.
Avoid making payment until you have the agreement in writing and can prove beyond the shadow of doubt someone from the creditor’s office made the agreement. Once you have fulfilled your part of the agreement, check your credit report to make sure the creditor has removed the charge-off.
When You Can't Get Your Way
If your negotiation fails and you can’t get the creditor to budge, decide if you want to pay the account or not. Even though the account will continue to be reported as charged-off until the credit reporting time limit is up, it will affect your credit score less as time passes. However, some lenders will not grant you new credit or loans until you’ve taken care of all past due account. So, if you plan to get a mortgage or auto loan in the next seven years, it’s better to pay the account. Once it’s paid, make sure your credit report reflects the payment.
What if your charge-off is sent to the IRS?