Your credit rating was stellar until a charge-off showed up. Now, your score is in the trenches and it seems impossible to get approved for a loan. Sound familiar? The good news is with persistence, that charge-off that’s dragging your score down can be removed. Keep reading to learn more.
A closer look at charge-offs and how they work
Wondering how a charge-off ended up on your credit report in the first place? Well, they surface when an account reaches a delinquent status of 180 days or more and the creditor decides to charge off the amount owed. This results in a tax write-off for the creditor.
But this doesn’t mean you’re off the hook. A collection agency usually takes over and interest and fees may be tacked on to the balance. However, they still expect the balance to be paid in full and can sue you in the court of law.
Even worse, charge offs sit on your credit report for seven years and can tank your score for quite some time. And paying it doesn’t make the negative mark go away. (Quick note: there are some instances where paying off the charged-off account makes sense. Get info here to learn more).
The good news: there are a few methods you can use to tackle those stubborn charge-offs and possibly have them removed from your credit report.
How to get charge-offs removed from your credit report
There are two common ways to have charge-offs deleted from your credit report.
Method 1: File a dispute
By law, entries on your credit report must be timely and accurate. But here’s the catch: the burden of proof is on the creditor. And you have the right to challenge any items you find questionable with the credit bureaus.
So, if you file a dispute, the creditor has 30 days to respond in writing validating the debt, as mandated by the Fair Credit Reporting Act. Otherwise, the item must be removed from your credit report.
If it’s a newer account, chances are the creditor or collection agency will verify that the debt is yours. But if the account is older, they may not bother responding to the dispute. And the charge-off could be removed from your credit report.
Method 2: Request a pay for delete agreement
If you don’t want to bother with filing a dispute, you can reach out to the creditor and ask to enter into a pay for delete arrangement. (It’s also an effective approach if the credit bureaus didn’t rule in your favor).
This means the creditor will remove the charge-off for your credit report in exchange for payment. If they agree, be sure to get the agreement in writing. (Here’s a handy template to help you out.).
Word of caution: if the account is listed with more than one collection agency, it’s best to have the debt validated by filing a dispute for each entry. Start with the original creditor and go from there to figure out who retains rights to collect on the debt. Chances are the account has been sold several times and you run the risk of paying a company that no longer has rights to collect on the debt.
What happens when the charge-off is removed?
With some persistence, it’s possible to see the charge-off removed from your credit report. And if it’s the only negative item, your credit score could shoot up in no time. This could equate to more loan approvals and more competitive interest rates. But if you haven’t had much luck, keep negotiating with the creditors until you get the results you’re looking for.