A charged-off account is considered one of the worst items to appear on your credit report. A charge-off occurs when you fail to pay your credit card bill for several months – typically six months in a row. After several months of non-payment, the creditor writes off the debt as a loss in their accounting records, closes your account, and demands that you pay the full outstanding balance.
By the time the charge-off is reported on your credit report, you may have already sustained significant damage to your credit score. Your credit card issuer may have also lowered your credit limit. If you apply for a credit card in the few months leading up to the charge-off, your application might be denied.
Once the charge-off is recorded on your credit report, it will remain there for seven years from the date of the charge-off. That’s a long time to have such a negative entry on your credit report.
A Charge-Off Does Not Mean Forgiveness
Don’t let the name fool you. You are still responsible for paying the charged-off account.
As long as the charged-off account remains unpaid, the creditor can continue collection efforts, which may include suing you for the amount owed.
Creditors and future lenders take charge-offs seriously, to the extent that they may deny any application for future credit cards or loans, so it’s in your best interest to remove charge-offs from your credit report. Negotiation is the best strategy to reduce the impact of a charge-off on your credit.
Talking to the Creditor
Charged-off accounts are often turned over to a third-party debt collection agency shortly after the charge-off date. When dealing with charge-offs, it’s best to work with the original creditor (the one reporting the charge-off status) rather than the debt collection agency. The collector cannot do anything about what the original creditor is reporting to the credit bureaus.
You want to convince the creditor to remove the charge-off from your credit report in exchange for payment. Before reaching out, know how much you can pay on the account. The more you can pay, and the sooner you can pay it, the stronger your negotiating power. If you can pay in full, you’re in a better position to negotiate. Ask to speak with someone who has the authority to remove the charge-off from your credit report.
Inform the creditor that you’re interested in settling the account and would like payment arrangements in exchange for the removal of the charge-off status from your credit report. Speak politely and professionally. Avoid blaming the creditor, making excuses, or sharing your life story. Keep it short and to the point. At best, the creditor will agree to remove the charge-off from your credit report.
Sending a pay-for-delete letter is another way to negotiate the removal of the charge-off. The letter simply requests that the creditor remove the account from your credit report in exchange for full payment. The key to a successful pay-for-delete letter is getting it into the right hands. Try to get a direct name and address of someone in the company, such as a manager or other higher-ranking staff, rather than sending your letter to a general mailing address.
It can be difficult to convince a creditor to remove a charged-off account from your credit report. However, some cardholders have successfully reached a pay-for-delete agreement.
Getting the Agreement in Writing
When the creditor agrees to remove the charged-off account from your credit report, get the agreement in writing.
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You can do this in one of the following ways: Ask the person assisting you to send you a copy of the agreement on the company’s official letterhead. Alternatively, get the name, mailing address, and phone number of the person assisting you. Send a copy of the agreement to that person via certified mail with a request for acknowledgment of receipt. Ask the person to sign and send you a copy.
Avoid making any payment until you receive the agreement in writing and can prove beyond a doubt that someone from the creditor’s office has agreed to it. Once you fulfill your part of the agreement, check your credit report to ensure that the creditor has removed the charged-off account.
When You Can’t Get What You Want
If your attempts to negotiate fail and you cannot convince the creditor to back down, decide whether you want to pay the account or not. Although the account will continue to report as charged-off until the reporting time limit is up on the credit report, it will affect your credit scores less over time. However, some lenders may not grant you new credit or loans until you resolve all delinquent accounts. Therefore, if you plan to get a mortgage or car loan in the next seven years, it’s better to pay the account. Once paid, ensure your credit report reflects the payment.
Frequently Asked Questions (FAQs)
If I can’t get it removed, will the charged-off account be removed from my credit scores after seven years of being paid, or after it first appeared?
Creditors and collection agencies are required to report the date of the original delinquency. This is when the seven-year timeframe begins. If you enter a repayment plan later or pay it off completely, the clock does not reset from that original date. The status will be updated upon payment and will not appear bad, but it will still remain on the report.
What is the difference between a charged-off account and a collection?
Both charged-off accounts and collections refer to a negative event on your credit scores. Paying off the charged-off account can prevent it from being sold to a debt collection agency, which prevents both negative marks on your credit scores. Ultimately, a charged-off account is between you and the original creditor, while a collection note means it now involves a third-party agency.
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Source: https://www.thebalancemoney.com/how-to-remove-a-charge-off-from-your-credit-report-960360
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