How to Remove a Charge Off from Credit Reports

What does 'charge off' mean? It's a negative credit rating with a credit bureau, and if you've skipped paying a debt, chances are it's sitting on your credit reports as a "charge off." When a creditor suffers a loss from non-payment, the debt is charged off to a profit and loss. This procedure clears the debt from their record-keeping but does not release your liability. A charge-off is a negative rating and a credit rating killer. 

Not only will your credit reports be affected by a charge-off, but the creditor will also pursue you and, most likely, a third-party debt collector. This can result in a judgment that will also be placed in your credit history with the credit bureaus and is very difficult to remove. It's best to avoid a judgment at all costs because they can remain in your credit history for a very long time, and since they can be renewed, you could be a target for wage garnishments and collection activity for a long time.

Understanding the Concept of a Charge-Off

Post-charge-off, the creditor usually sells the debt to a third-party debt collection agency, which then pursues repayment from you. Charge-offs can negatively impact your credit score, but several strategies can be employed to manage and mitigate their effect.

How long can it remain on my credit reports?

The FCRA allows for the debt to be reported for a number of years, and it was often thought that making a payment or a promise to pay could not renew the statute of limitations. However, the seven-year clock would start all over again for your debt. The laws governing how long it can remain on your credit report can be state or federal. If your state offers more protection, it will supersede the federal rule. For example, perhaps in NY, a debt can remain for five years, but under the FCRA, it's seven. Your state would apply. It's called the Supremacy Clause. 

Do I contact a credit bureau or creditor about my charge off? 

Credit reports often contain mistakes or old information like an expired charge-off; it’s inevitable with the amount of data the credit bureaus house. It's not uncommon for someone to see old expired debts still showing up in their credit reports, but often it's not so much a credit bureau mistake as the source reported it. 

The bureaus receive your account information from your creditors, so if the mistake is from them, it will carry over. You can either contact the creditor to update their records or go directly to the credit bureaus and open an investigation to inform them of the mistake. The bureaus will contact the creditor on your behalf and ask for an update. 

Before contacting the credit bureau, it’s a good idea to contact your creditor first and inform them of the mistake. This will save time when the bureau reaches out to them for the correction. If not, the creditor may provide the same false information again, and you'll have to start all over. Most issues on credit reports are a mistake on the source's end. 

Collection Agency Issues with Reporting a charge-off

Don’t overlook the possibility that a collection agency may have a hand in the false information reported to your credit reports. When they purchased the debt, they may have updated the account's last payment date to the date they purchased it. This is not legal. An original charge-off date cannot be changed to accommodate a collection agency's use of it as a collection tool. The FCRA protects you from this, and federal laws empower you to challenge any information you deem erroneous on your credit report.

There are two statutes to be considered for a charge-off

One to report and one to collect. Regarding collection, a lawsuit is still legally enforceable if the debt does not meet the rule. If it does, that is your defense to stop lawsuits from the collector or creditor.  A bill collector isn't going to volunteer this information to you; they hope you don’t discover it yourself. There is no law against them collecting on an expired debt, so why would they tell you? 

Once you receive the initial collection notice from a debt collector, you'll have about 30 days to decide whether to dispute it. If you don’t, the collector legally has the right to assume the debt is valid. If you question the debt's legitimacy, then be sure to immediately respond to the collection notice in writing to protect your rights. 

Tell the collector what you dispute about the debt—the balance, date last paid, etc.—or if the debt has expired. Attach any proof to the letter you have, especially proof of an incorrect date that proves your statute of limitations claims. The activity must cease once the collector is notified of an expired debt in writing.

If the statute of limitations for the credit report hasn't expired, that will not change. However, you do have the right to open an investigation of the credit bureau’s accuracy. The item must be removed if the bureau cannot confirm it. If the item is verified as accurate, it will remain until the expiration of the SOL, even if it’s no longer collectible. 

Should I pay a charge-off?

It’s not a good idea to pay off a charge-off before you try to delete it. You may get it removed from your credit reports on your first go-round of disputes. If you can’t get it deleted, then attempt the pay-for-delete option. If you were to pay the chargeoff without following these two options, it would still be a bad mark. A paid charge-off is still negative; while the creditor was paid, you gained nothing of value.

If the above methods didn’t work for you and the charge-off is getting in the way of a refinance, mortgage purchase, or employment opportunity, you’ll eventually need to pay it. The good news is that once an account is charged off, it typically goes to a third-party collection agency, which is easier to negotiate with than an original creditor. A lender like Citibank will not likely oblige any talk of paid settlements for removal, but a debt collector typically will. Their only concern is collecting the money. Use that to your advantage.

Negotiating a Pay-for-Delete Agreement

If the charge-off is valid, consider negotiating a 'pay-for-delete' agreement. This agreement entails paying a portion or all of the debt in exchange for the creditor or collection agency agreeing to remove the charge-off information from your credit report.

Remember that creditors or collectors are not obligated to agree to a pay-for-delete arrangement, but it's worth a try. If you successfully negotiate this agreement, ensure you receive it in writing. If the party you're dealing with fails to communicate the removal of the charge-off to the credit bureaus, you can use this written agreement to contact the credit bureaus and ensure they update your credit report accordingly.

Importance of Written Agreements

Whether making a payment arrangement or negotiating a pay-for-delete agreement, obtaining a written record of the agreed-upon terms is crucial. This written agreement should be on the official company letterhead and accurately detail your agreement. If you expect a letter from the creditor, credit reporting agency (CRA), or debt collection agency and it hasn't arrived, don't hesitate to follow up. Be persistent until you receive a written agreement accurately reflecting your negotiated deal. Please do not make any payments or promises to pay until they’ve agreed that paying for deletion is an option.

You can always try a goodwill letter if you cannot negotiate a pay-for-delete. You can find an example of our goodwill letter on our medical collection page.

Efficiently dealing with charge-offs on your credit report involves a few key steps:

• Verify your credit report for any charge-offs and gather the debt details.

• If the debt is inaccurate, dispute it with the credit bureaus.

• If the debt is accurate, you can try to pay it off by negotiating a pay-for-delete agreement.

• Regardless of the approach, ensure to get everything in writing.

• Hiring a credit repair company can expedite the process, though this service is costly.

What is the 609 loophole method?

A credit repair strategy known as a "609 dispute letter" is a letter that is sent to the three major credit agencies and asks them to delete incorrectly reported bad information from your credit report.

The term comes from the Fair Credit Reporting Act provision that bears that number. The 609 dispute letter is frequently called a credit repair secret or a legal loophole that forces credit reporting agencies to erase certain bad information from your credit reports. This information includes late payments, collection accounts, and charge-offs.

Despite this, there is no evidence to show that it is more effective than other techniques of credit rehabilitation, your credit score might not change as a direct result of receiving a 609 letter, but it could make it easier for you to get assistance from the credit bureaus. FCRA 609 (A) (1) (a), is a debt validation letter, not some secret sauce.

How much will your credit score increase if the charge-off is removed?

A charge-off is a significant negative mark on your credit report because it indicates that a creditor has given up on collecting a debt and has written it off as a loss. When a charge-off is removed from your credit report, it eliminates that negative information, which can improve your creditworthiness by up to 50–100 points if other positive factors are present in your credit reports.

The specific increase in your credit score after removing a charge-off depends on factors such as your overall credit history, the presence of other negative items, the age of the charge-off, and the scoring model being used. Generally, the more positive and recent information you have on your credit report, the greater the impact of removing a charge-off.

Is a charge-off worse than a repossession?

A charge-off is generally considered less severe than a repossession. A repossession occurs when the lender takes back a vehicle due to non-payment, and the borrower still owes the deficiency balance after the vehicle is sold. However, it’s apples and oranges because they are both negative and will reduce your credit score. The repossession is an R-9, as is the charge-off, but it looks worse because it’s attached to a piece of property, and those types of defaults look much worse. Most responsible people will not default on a secured loan like a car or mortgage as easily as they might with a credit card. If you are concerned about a foreclosure on your credit, you can learn more about disputing those as well.

A sample dispute letter to remove a charge-off

[Credit Bureau Name]

[Credit Bureau Address]

[City, State, Zip Code]

Subject: Dispute of Inaccurate Information on Credit Report

Dear Sir/Madam,

I am writing to dispute an inaccurate charge on my credit report. The item in question is [Provide Details of the Inaccurate Charge: Name of Creditor, Account Number, and Amount].

I have reviewed my records carefully and found this charge is incorrect because [Provide Reason: e.g., I never opened this account, the amount is wrong, I settled this debt for removal, etc.]. I am requesting that this charge be removed from my credit report as it negatively affects my credit score.

Enclosed are copies of [Specify Documents: e.g., payment records, court documents, settlement letter, identity theft report, etc.] supporting my position. Please investigate this matter and correct the disputed item as soon as possible.

I understand that under the Fair Credit Reporting Act, you are required to take action within 30 days of receiving this letter. I expect you to thoroughly investigate this matter and provide me with a written response.

Thank you for your prompt attention to this matter.

Sincerely,

[Your Name]

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It is of the utmost importance that you send the letter via certified mail with a return receipt requested. This is the only way to ensure that you have concrete evidence that the credit bureau has received your dispute letter.