- Understanding Why a Debt Becomes a Charge Off
- How Charge Offs Affect Your Credit Score
- Paid Vs. Unpaid Charge Off
- How Long Do Charge offs Stay on Your Credit Report
- Steps to Remove a Charge Off From Your Credit Report
If you have recently pulled your credit report and noticed a charge off, you might be wondering what that means and how you can get a charge off removed from your credit report.
First of all, keep in mind that a charge off entry on your credit report is a big deal and will likely result in a huge credit score drop.
Therefore, it’s really important that you get charge offs removed because otherwise a charge off will stay on your credit report for seven years.
Let’s get into what options you have available.
Understanding Why a Debt Becomes a Charge Off
When you haven’t paid on an account for 6 months to a year, creditors will often mark the account as a “charge off”.
This means that the creditor has determined they’ll likely be unable to collect on the debt so they are claiming it as a business loss.
This is basically done for tax reasons.
However, just because it’s marked as a loss doesn’t mean they will stop attempting to collect on the debt.
In fact, they might even hire an outside company to handle the collection process. This is important to understand in case you’re contacted by a collection agency you don’t recognize.
Either they purchased the debt from the original creditor and are attempting to collect on it, or they have been commissioned by the original creditor to collect the debt.
How Charge Offs Affect Your Credit Score
Once an account has been charged off, two things will likely happen right off the bat.
First, you’re going to start receiving calls and letters from collection agencies attempting to collect on the debt.
Second, the account will be marked as a “charge off” on your credit report.
A charged off account on your credit report will devastate your credit score. A single charge off can cause your credit score to drop 100 points or more. It’s a big deal.
In addition to your credit score dropping, you’re also going to have a really difficult time getting approved for any new credit cards, mortgages, or auto loans.
Lenders rarely extend credit to people with even one charge off on their credit report.
Paid Vs. Unpaid Charge Off
There are two types of charge offs that could appear on your credit report.
If you have paid the charged off account in full, it will be marked as “paid”, if you haven’t it will remain marked as unpaid.
Some collection agencies might try to convince you that if you pay the charge off in full, your credit score will completely recover. This is not true.
A paid charge off will definitely look better to lenders who do manual underwriting, but it will have a minimal effect on your credit score.
Also, paying off the charge off won’t automatically delete the entry from your credit report.
How Long Do Charge offs Stay on Your Credit Report
A charge off will remain on your credit report for seven years, and then it’s automatically deleted.
For example, if you stopped making payments on one of your credit cards for 6 months, and it was marked as a charge off on January 1st, 2017, it would remain on your credit report until January 1st, 2024.
Steps to Remove a Charge Off From Your Credit Report
1. Offer to Pay Creditor for Deletion
One of the most effective ways of getting negative items removed from your credit report is to offer to pay the debt, and in exchange, the creditor agrees to remove it from your credit report.
This method obviously only works on an unpaid charge off.
That is if you’ve already paid the charge off but it’s still on your credit report, you really don’t have any leverage to negotiate for a removal.
Before You Pay the Charge Off
Before you decide to go the “pay for deletion” route, there are a few things you need to keep in mind.
- If it’s an old charge off, don’t offer to pay the debt in full. Rather, you should try to negotiate for less than what they are asking. Start with 50% and go from there.
- Some creditors will claim that they can’t legally remove the charge off. This isn’t true. Continue to negotiate until a deal can be made.
- You can negotiate over the phone, but always get the agreement in writing before sending them a check.
- Never give a debt collector access to your bank account.
2. Use the Advanced Method to Dispute the Charge Off
If you don’t have the money to pay the balance in full or you’re unable to get the original creditor to agree to remove the charge off from your credit report, the next step is to dispute the negative entry using an advanced method.
In order to dispute the entry using the advanced method, you’ll need a copy of your current credit report.
Next, find the charge off entry and look at every detail to ensure that everything is completely accurate.
The key here is to be very specific. If anything is inaccurate you have the right to dispute the entire entry.
Here are a few details that you should be verifying are accurate:
- Account Number
- Creditor Name
- Open Date
- Charge off Date
- Payment History
If you find any information that isn’t correct, write a letter to each of the 3 credit bureaus stating that there is incorrect information that needs to be corrected or removed. You should list out the inaccurate information in your letter.
If the incorrect information can’t be verified, they’ll have to correct or remove the charge off. Many times the information simply can’t be verified and the entry will be removed.
3. Have a Professional Remove the Charge Off
Lastly, if you’re the type of person who would rather have a professional handle it and just be done with the whole thing, I suggest you check out Lexington Law Credit Repair.
They’ll take care of you, and honestly, they usually get stuff removed a lot quicker. Give them a call at 1-833-336-9339 or Check out their website.
Have other techniques you have used to remove charge offs from your credit report? I’d love to hear about them in the comments below.