Charge offs are bad news when it comes to credit reports and scores. They’re considered major derogatory items (aka “major derogs”) and are among the worst types of entries you can have in your credit history.
In many cases, charged off accounts can remain on a credit report for up to seven years. But removing a charge off early is sometimes possible. Keep reading to discover three ways to remove charge offs from credit reports, along with other helpful details about these negative credit entries.
Before we continue – If you want to avoid the hassle of removing a charge off by yourself and just want to hire a company to handle the process for you, our top recommendation is Credit Saint.
3 Ways to Remove Charge Offs from Your Credit Report
1. File a Dispute with the Credit Bureaus
The companies you do business can legally share details about how you pay your bills with the credit bureaus. Those credit bureaus, in turn, can gather information about you from multiple sources and package it together into easy-to-read reports. The credit bureaus then sell those reports to others who want to review your data to forecast the risk of doing business with you.
You also have rights when it comes to your personal credit information. One such right comes from the Fair Credit Reporting Act (FCRA). Per the FCRA, a consumer can “dispute with the consumer reporting agency the accuracy or completeness of any information in a report.”
When you dispute a charge off or any other item, the credit reporting agency that receives your request has 30 days to investigate. At the end of the investigation period, the bureau must take one of the following actions with the disputed item:
- Delete it
- Update/correct it
- Verify that it’s accurate
If your dispute is successful, they may remove the charge off from your file. But if the investigation doesn’t go in your favor, the account will stay put.
2. Pay for Delete
A pay for delete is a type of deal you can sometimes make with the original creditor. It starts with an offer to settle or pay back the full amount of a charged off account or a collection. In exchange for the debt being paid in full, you ask the original creditor to have the bureaus delete the account from your file.
A creditor can ask a credit bureau to remove a charged off account from your report any time it wishes. There’s nothing illegal about the practice since credit reporting is optional. The bureaus, however, frown upon pay for delete settlements.
Credit bureaus instruct debt collectors that report information to the credit bureaus (aka data furnishers) not to request deletions of accurate accounts in exchange for payment. In fact, data furnishers sign agreements with the credit bureaus promising to follow these and other rules. If a data furnisher violates its user agreement and gets caught, it might lose its ability to submit customer data to the credit bureaus in the future.
Credit reporting is important to many businesses. It helps creditors encourage customers to pay on time. For this reason, convincing a creditor to accept a pay for delete offer can be a long shot. If you negotiate a payment for deletion deal on a charge off, get the offer in writing before you make any payments.
3. Hire a Credit Repair Company
The FRCA gives you the right to dispute inaccurate information on your own. However, you don’t have to manage the process by yourself. Some people prefer to hire credit experts to assist with getting a charge off removed.
Credit repair companies can dispute questionable and inaccurate information on your credit reports—charged off accounts included. And if your initial dispute is unsuccessful, an experienced credit repair company should be able to help you follow up again.
Of course, there’s no guarantee that credit experts will be able to remove a charge off from your credit report. Any trustworthy company will be quick to point out this fact. But if you’re comfortable with the fees and you don’t want to send and track credit disputes yourself, working with the best credit repair companies might be a good fit for you.
If you’re looking for a good credit repair company that gets results, our top recommendation is Credit Saint. They are the most successful company for getting negative items removed from your credit, including charge offs. Take advantage of their free credit consultation to see how they can help you.
What Is a Charge Off?
When you borrow money from the original creditor, you promise to repay the debt, plus interest and fees, at a certain amount (or percentage) per month. If you miss a payment, the credit card issuer may report you as late to the credit bureaus. Miss enough payments and that same creditor could opt to charge off your account.
The term charge off describes a debt on which you’ve fallen so far behind that the creditor no longer believes you will pay it back. So, the creditor writes the account off as a loss for accounting and tax purposes.
A charge off, despite how it sounds, isn’t the same as debt forgiveness. If the debt is legitimate, you still owe the money you borrowed plus any interest and fees you agreed to pay.
How Does a Charge Off Affect Your Credit Score?
Derogatory information, like a charge off, has the potential to hurt your credit. To make matters worse, a charge off doesn’t just have the potential to damage your credit once. It might hold your score back to some degree for several years.
Should I Pay Charged Off Accounts?
There are several factors to consider as you decide whether to pay a charged off account.
- Are you expecting a credit score increase? Paying a charge off often won’t increase your score. If your goal is to boost your score, you may be better off to focus on bringing past-due accounts current, or paying down debt balances before you address charge offs.
- Do you plan to apply for new credit in the future? Some lenders may not be willing to work with you if you have outstanding, negative debts. A mortgage lender, for example, might want any charged off accounts on your credit report to show $0 balances before approving your application.
If you decide to pay or settle a charge off in full, it’s important to keep good records. Get a copy of the debt balance you owe (or the debt settlement offer) from the creditor before you pay. Then follow up to get a receipt and zero balance statement afterwards.
How Long Does a Charge Off Stay on Your Credit Report?
Credit reporting isn’t required. No law forces a company to report information about you to the credit reporting agencies. Nonetheless, many creditors do proactively opt to share customer data with Experian, TransUnion, and Equifax.
When a debt collector shares your information or includes it on a credit report, there are rules they have to follow. The FCRA limits how long negative information, like charged off accounts, can stay on your credit report. Charge offs in particular can only remain on a consumer credit report for seven years.
Is a Charge Off Worse Than a Collection?
Charge offs and collections represent two types of derogatory accounts that can appear on a credit report. According to FICO, both charge offs and collections are likely to have a serious negative affect on your fico scores.
But is a charge off worse than being referred to a collections agency from a credit scoring standpoint, or vice versa? The answer depends on several factors.
1. The Age of the Account
Credit scoring models, like FICO and VantageScore, consider many details when evaluating your history. The age, or rather the recency, of derogatory information on your report is one such detail. Negative information on your credit report that occurred a long time ago won’t affect your FICO scores as much as recent negative items from failing to pay back the debt.
So, if you have a debt collection account on your credit report that’s one month old and a charge off that happened three years ago, the debt collection account will most likely hurt your credit score more. If a charge off on your credit report is more recent than a debt collection account, then the charge off will probably have a bigger impact.
2. The Balance of the Account
The information on a credit report is broken up into different sections. When you review your credit report, you’ll usually find charged off accounts (if you have any) in the “credit accounts” section. This section may go by a different name, but it will contain details about your current and closed accounts.
Because of the way a charged off account appears on credit history, it might show that you owe a past-due balance to a credit card company. Past due balances are negative factors in terms of credit scoring.
A debt collection agency, by comparison, does not list past-due balances. And the balance of the collection account itself is not considered by many scoring models. The fact that your account was turned over to a debt collector is what hurts your score.
The balance on a collection tends to be largely irrelevant. So, if you have a charge-off with a past-due balance on your credit report, it could potentially be worse for your score than a collection (assuming both accounts are the same age).
How Many Points Does a Charge Off Drop Your Credit Score?
It’s difficult to predict how much any specific action will affect your credit file. Credit scoring models don’t consider one item at a time when calculating your score. Rather, scoring models look at all of the information on your credit report together and predict your level of risk based on the overall picture.
A new late payment to a debt collector, for example, won’t drop your score by 20 points. Likewise, the appearance of a new charge off on your report isn’t worth a specific number of points either.
The impact a charge off has on your credit history is influenced by factors like the recency of the event and whether the credit card account has a past-due balance. The other items on your credit report are also relevant. And, of course, the type of scoring model that is used to calculate your FICO score makes a big difference in the outcome as well.
Will a Charge Off Affect Buying a House?
Mortgage lenders check your credit reports from all three credit reporting agencies when you apply for a home loan. If any of your reports contain negative information, like charged off accounts, it might cause some problems. For this reason, it might make sense to contact a credit repair company to see if they can help.
- A charge off could affect your credit scores. Most mortgage lenders have a minimum credit score requirement that you need to satisfy before they will approve your loan application. Charge offs are negative. So, they might cause your credit score to drop to a point where you won’t qualify for a mortgage.
- An outstanding balance could hurt you. Some lenders may ask you to pay the balance on any charged off accounts (or at least settle them in full) before they’ll approve you for a mortgage.
How Long Does It Take for a Charge Off to Be Removed?
The credit reporting agencies must remove the charge off from your credit report after seven years from the date. It might be possible, using one of the methods above, to remove the charge off early. But there are no guarantees when it comes to getting items removed from your credit file.
Trying to remove a charge off from your credit report can be a tedious process, especially if you’re not familiar with the FCRA and other consumer protection laws. But you don’t have to dispute charged off accounts alone. Credit Saint specializes in disputing errors that may be hurting your credit scores and showing you how to add positive information to your credit reports as well.