Falling behind on loan or credit card payments can cause an account to become delinquent. When debt is delinquent long enough, a lender may give up on trying to recover the amount they lent. They may instead perform a charge-off, which tells the credit bureaus that they could not get the borrower to pay them. These can severely harm your credit, whether legit or made in error. So, in this article, we’ll explain how charge-offs work in more detail and how to get them off your credit report as soon as possible.
How do charge-offs work?
A charge-off is a credit report entry that shows a creditor has closed a past-due account with them after trying and failing to get a payment from you. Creditors often report delinquent accounts as charge-offs after three to six months of trying to get payment from you. Even if the creditor sells the account to a collection agency, they may still report a charge-off. These can sit on your report for up to seven years.
A charge-off is a derogatory entry, meaning it can significantly harm your credit score. As a result, a charge-off can make it harder to qualify for great terms on loans and credit cards.
How to remove charge-offs from your credit report
Charge-offs can damage your credit and harm your future borrowing prospects. Fortunately, you may be able to get them removed by taking the following steps:
1. Get a free copy of your credit report
Each credit bureau — Equifax, Experian, and TransUnion — gives you one free copy of your official credit report per year. Get your report each year and check it over. Charge-offs may appear in the section titled Negative Items or Negative Accounts. If you see a charge-off and believe it is an error, dispute it immediately with the credit bureaus and inform the lender. If the charge-off is legitimate, continue with this process to remove it.
2. Find out the debt’s details
You can only negotiate a charge-off removal with the debt’s current owner. That means if the original lender sold it to a collections agency, you must negotiate it with that agency, not the lender. After that, find out the debt’s size and how old it is.
3. Offer a settlement amount
To remove a legitimate charge-off, you’ll likely have to pay at least something. Usually, that involves negotiating a settlement amount. If a collections agency has the debt, you may be able to negotiate a lower settlement amount since lenders sell delinquent debts to collections agencies for less than the debt’s worth. Starting at a percentage of the amount owed, such as 25%, might be a good way to open the negotiation. The debt owner will likely want more, but this gives you negotiating room. The charge off and sale of the debt, however, doesn’t usually affect the right to collect from you, so you may have to pay the full amount.
4. Get a written agreement and pay the settlement
Once you arrive at an agreement, get it in writing. Make sure all the details are there. Check that the agreement specifies the collections activities will stop, and that the delinquent balance will be set at zero. Remember, though, paying the debt off, by itself, will not remove any negative credit reporting before you paid.
In rare cases, you may be able to have the charge-off wiped from your report early as well. However, few agencies will do this. That said, a $0 balance could help recover some of the credit you lost. Regardless, when seven years have passed, you can contact the relevant parties and have the charge-off entirely removed in most cases.
The bottom line
Charge-offs can do significant credit damage, but you may be able to get them off your report, or at least reduce the balance to zero, if you know what to do. Start by getting your credit report and looking for charge-offs. If the charge-off is erroneous, dispute it with the credit bureaus ASAP and contact the lender about it.
If it’s legitimate, find out who owns it, how large it is, and how old it is. Negotiate a settlement with the lender or agency if possible, then get the agreement in writing before paying the settlement amount. Follow these steps, and you’ll be on your way to cleaning up your credit report and fixing your credit score.