Removing A Charge-Off From Your Credit Report: Is It Possible?
Your credit score determines whether you can apply for a loan, a mortgage, and even some jobs, so keeping it as high as possible is crucial. Having what’s called a charge-off show up on your credit report is pretty bad news. It shows that you’ve stopped making payments on a debt and that your creditor has given up on collecting it.
A charge-off will lower your credit score—possibly into the “very poor” or “high risk” range—and can stay on your credit report for seven years.
All US citizens are entitled to receive a free copy of their credit report from each of the three main credit-reporting agencies (CRAs) once a year, so it’s pretty simple to check if there’s a charge-off on yours. It’s a good idea to apply for a new credit report every four months from one of the CRAs: Experian, Equifax, and TransUnion. This will show any charge-offs and tell you if your credit score has dipped for any reason.
If it has, you’ll need to investigate the cause and take action to bring it up again.
There are two major credit scoring models: FICO and Vantage. Here are the ranges of each:
Your Credit Range: FICO vs. Vantage Scores
- 800–850: Exceptional
- 740–799: Very good
- 670–739: Good
- 580–669: Fair
- 300–579: Very poor
- 901–990: A, Super Prime, 11% of consumers are Super Prime.
- 801–900: B, Prime Plus, 29%
- 701–800: C, Prime, 21%
- 601–700: D, Non-Prime, 20%
- 501–600: F, High Risk, 19%
If you do find a charge-off when you pull your report, all is not lost. There are a few sensible ways to deal with it.
What Are Charge-Offs And Why Are They In My Reports?
A charge-off on your credit report is a record of an unpaid debt that your creditor has written off as a loss. It usually happens when you’ve missed minimum payments on a debt for six months. At this point, the creditor will close your account (write it off) and demand payment in full.
If you don’t pay, the creditor may sell the debt to a collection agency. If this happens, you’ll get two negative items on your credit report—one for the charge-off and one for the collections account.
Having a debt written off doesn’t mean you’re in the clear. You’re still liable for the full amount and the creditor will still chase you for payment. It’ll also make you look very untrustworthy to other lenders. Usually, your credit score will have already dipped in the months before the charge-off—another reason to keep a close eye on your reports.
There are many reasons why people miss payments—you may be managing several debts and have simply forgotten to make the payment transfer on one. Or you may be struggling to meet your financial obligations in general. This is a situation where debt consolidation can help.
What is debt consolidation?
Debt consolidation means selling all your unpaid debts to one company, who’ll then collate them and charge you a monthly repayment fee. It can be a simpler way of dealing with several debts at once than trying to juggle them yourself. If, however, you have debts that, realistically, you’ll never be able to repay, you may decide to file for bankruptcy. In this case, you’ll need to know how to write a bankruptcy letter.
Removing Or Disputing A Charge-Off
If you believe that the charge-off showing on your report has been recorded in error, you stand a real chance of getting it removed. When it comes to how to remove a charge-off from your credit report, the process for filing a dispute is as follows:
- Determine if the charge-off is accurate
The only sure-fire way to get a charge-off removed is if you dispute it and it’s found to be incorrect. Crosscheck your records carefully to ascertain when you made your most recent payments on the relevant debts. If the charge-off seems mistaken, file a dispute with a CRA. Our template shows you how to write a dispute letter.
- Communicate with the creditor
If the charge-off is correct, there’s, unfortunately, no way of getting it removed without paying the debt in full. However, repaying it will help, eventually, to rebuild your credit score. The first step is to speak to the actual creditor (the debt may have been sold on). By law, debt collectors must not lie to you, so you can simply ask who owns the debt. Then communicate with the debt owner directly to decide on a plan.
- Establish a payment plan or settlement
As creditors are keen to get debts cleared, you may be able to negotiate a deal—perhaps even with a discount if you can pay off a large portion at once. If you can’t pay in full, ask the creditor to help you arrange an automatic payment plan. Although this won’t fix your credit score immediately, it’ll at least stabilize it. Once your payments are up and running again, you’re more likely to be approved for other loans.
- Request a Pay-for-Delete arrangement
If you’re able to pay off the account in full, you might be able to negotiate a deal with the creditor. Pay-for-delete arrangements are when the creditor deletes a charge-off from your report in exchange for payment of the whole debt. These sample negotiation letters will help you prepare for this.
- Negotiate re-aging the account
When you’re ready to start making payments, you can ask the creditor to re-age your account. If they agree, this means they’ll remove the charge-off even if you haven’t paid the full amount back yet. However, the creditor won’t be able to remove missed payments from your account, as this would violate the Fair Credit Reporting Act.
- Wait it out
If there’s nothing else you can do, you may simply have to wait for the charge-off to fall off your report. Credit reports consider only the last seven years of your financial history. So, as long as you take care not to rack up any more debt, you should be in the clear by then.
How A Charge-Off Affects Your Credit Score
Having a charge-off on your report will affect your credit score in several ways:
- Seven years on your account
Unfortunately, a charge-off will stay on your account for seven years unless you manage to negotiate a pay-for-delete arrangement. However, some degree of credit recovery is possible during this period, as long as you keep up with all your repayments.
- Payment history
The CRA will calculate around 35% of your credit score based on your payment history. This means that any late payments on your record will damage your score. However, each timely payment helps to rebuild your credit rating. If you make a payment within 30 days of its due date, the creditor won’t record it as late. Keep an eye on your payment dates or set up automatic payments to help.
- Approval for loans
You may find it much more difficult to get a loan if there’s a charge-off on your record, as most lenders frown at this. However, it’s not impossible. You may need to shop around more and be willing to accept higher interest rates. If you have collateral, such as a house or a car, you might be able to use it to get a secured loan.
To pay or not to pay?
You might think that once you get a charge-off it’s not worth bothering with repayment since the damage to your credit score has already been done. However, future lenders will look more positively on you if you’ve paid back your debts, even if you were late doing it.
How To Bounce Back After A Charge-Off
Credit recovery is still possible after a charge-off. There are several actions you can take to help build your credit.
- Monitor your credit
Starting repayments on a charge-off won’t immediately improve your credit score, but it will eventually go up if you don’t miss anymore. Keep a close eye on your credit status by getting a report every four months from one of the CRAs. Monitoring your reports regularly means you’ll soon find out if any damaging errors appear. You’ll then need to know how to remove negative items from credit.
- Track your expenses
Creating a simple but disciplined budget for paying bills, which includes all your monthly income and outgoings, is helpful. Track every single expense and draw up mini budgets for all areas of your life: transportation, housing, entertainment, etc. You’ll soon get used to checking how much you’re able to spend before you do so. All it takes is a pen and paper, a digital spreadsheet, or even a phone app.
- Hire a credit repair agency
A credit repair agency saves you time and stress, especially if the prospect of negotiating with creditors brings you out in a cold sweat! However, they’ll charge fees, which might not help if you’re already struggling financially. Be wary of any credit repair company that charges upfront fees or makes too-good-to-be-true promises. Do your research to find the best credit repair companies to work with.
- Consider bad credit loans (or secured loans) if necessary
If your credit history is poor, it’s still possible to get a loan, even without collateral. There are several companies out there serving poor-credit customers. They lend small sums with terms of up to 72 months. These unsecured loans (with no collateral) typically have higher interest rates. If you can put down collateral, you might get better rates by taking out a secured loan.
Final Thoughts On Charge-Offs On Your Credit
While charge-offs do have a lasting negative impact on your credit rating, knowing about them can help you deal with (or prevent) them.
The best course of action is always to repay the debt as soon as you can. Once you’ve done this, the balance on the account will drop to zero. The CRAs will then list it on your report as “paid in full” or “settled in full.” This looks much better to future lenders than “charge-off.”
If you’re struggling to make the minimum payments on a debt, get in touch with your creditors straight away. Unless the minimum payments are met, the account will fall delinquent in six months, even if you’ve made partial payments. If you explain your situation to the creditor, they might be able to lower your minimum payment and avoid your debt being charged off.
Most of all, if you find yourself struggling financially or with a charge-off, try not to panic. There are many ways to deal with it and many different organizations that can help, such as the National Foundation for Credit Counseling. Such organizations will help you find a local partner who can advise you for free or at a low cost.
You can also find a lot of helpful information on the government’s debt advice page. Additionally, the Federal Trade Commission’s Consumer Advice section offers a complete overview of debt management.
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