How to Remove a Charge-Off From Your Credit Report

It’s not always easy to keep up with your finances. Sometimes one late payment turns into two or three. When creditors feel that you’ll never repay them, they often close your account and send your debt to a collection agency. The credit industry calls this a charge-off. If you’ve landed in this predicament, you can still get out of it. However, it will affect your finances and fixing it will take some work on your part.

A financial advisor can modify or create a personal budget and manage debt.

What Is a Charge-Off?

A charge-off is what happens when you fail to make payments for several months in a row on a loan or credit card. Essentially, the creditor records that debt as a loss in its books and closes your account. It does this because it believes you won’t ever repay the debt.

However, that doesn’t absolve you of the debt. Even though the creditor closes your account and reports it as a loss, you must still pay back what you owe. At this point, creditors send a delinquent debt to a collection agency. The collection agency will then continue to hound you for money. This alerts credit bureaus which then reflects negatively in your credit report.

A charge-off adversely affects your credit score pretty heavily, sometimes by more than 100 points. All your missed payments, a closed account and the debt sent to a collection agency showcase bad credit behavior. You’ll want to avoid charge-offs, especially if you have a higher credit score. Usually, the higher your score, the more you have to lose from bad credit behavior.

A charge-off remains on and affects your credit report for seven years. This makes it less likely for other creditors to extend favorable lines of credit to you. Unfortunately, that can mean higher rates and payments and more money spent over the life of your loan. Often, you won’t even qualify for loans, like mortgages, with a charge-off or other outstanding debts on your report.

How to Remove a Charge-Off From Your Credit Report: Negotiate It

If you’ve ended up with a charge-off on your credit report, you can take steps to lessen the impact. Start by making sure the charge-off is accurate. Unfortunately, mistakes happen, and a charge-off could end up on your credit report when you don’t even have a delinquent account. Other times, a charge-off can remain on your report even after seven years. In that case, you’ll want to contact the creditor and the credit bureaus to have it removed.

If the charge-off occurred in error, you have a few options. One option is to scour the charge-off entry for any mistakes. If even the smallest detail is incorrect, you can dispute the whole entry. This includes account numbers, names, addresses, etc. If you find an error, you can dispute the entry with the credit bureaus and the creditor to have it fixed or removed. If they cannot verify a piece of information, they remove the whole entry. You’ll want to keep records of the errors and all your correspondence. If the creditor agrees to remove the entry, get the information of everyone you speak to and when you spoke to them. Be sure to obtain that agreement in writing as well.

You will also want to check whether the amount you owe in the charge-off entry is correct. Perhaps your credit report doesn’t reflect a payment that lessened your debt. Other times, collection agencies can add on extra fees or interest. Sometimes your report can list the same charge-off, but as due to multiple collection agencies. This is because your debt has been sold and moved around, but you only need to pay one company. In any case, contact the original creditor to make sure the entry reflects exactly what you’ve paid, what you owe and who you owe it to.

How to Remove a Charge-Off From Your Credit Report: Pay It

Sometimes creditors won’t remove a charge-off from your credit report. In that case, you may have to pay it. However, this doesn’t mean you always have to pay the full amount in one go. For many people, paying the full amount isn’t even feasible. Tiffany Aliche, the personal finance blogger behind The Budgetnista, recommends honesty first. ¹

“Giving them a call to say what you can do” is better than ignoring the debt, she says. For example, if the creditor is asking for $300, but you can only pay $60 a month, a creditor may just take that deal. If they don’t, “sometimes you just have to hang up and speak to the next one,” Aliche said.

If you do have the funds to pay off the entire debt, that may be your best bet at getting it removed. Creditors are usually more willing to remove a charge-off when you can pay more rather than less of the debt. This is known as “pay for deletion.” Again, you should ensure you speak with someone with your creditor’s company who can delete the entry. Before you pay anything, you should receive the agreement in writing. You have a lot to gain from paying the charge-off sooner rather than later, to prevent a prolonged weight on your credit score.

Keep in mind that when you pay a charge-off in full, that doesn’t necessarily remove it from your credit report. You may have to request and argue your case to have it removed. Otherwise, it will remain on your report as a “paid,” “closed,” or “settled” charge-off. You may also ask your creditor to “re-age” your debt. This will make it look as though you paid off the debt earlier than you did.

What Happens to Your Credit After You Pay a Charge-Off?

Paying a charge-off does not automatically remove it from your credit report. Instead, the account should generally be updated to show that the balance was paid or settled. The negative history can remain for up to seven years from the date of the original delinquency.

Paying the balance can still improve your credit score. A paid charge-off shows prospective lenders that you no longer owe the outstanding debt, which may affect how they evaluate a future application. The impact on your credit score will depend on the scoring model and the other information in your report.

If the account still shows an outstanding balance after you pay it, check your credit reports and dispute inaccurate information with the credit bureau reporting the error. Paying legitimate debt, however, does not give you the right to have accurate charge-off history deleted before its normal reporting period ends.

How to Manage a Charge-Off You Cannot Pay in Full

If you cannot pay a charge-off in full, you may be able to negotiate a settlement or payment plan with the creditor or collection agency. Before agreeing to anything, confirm who owns the debt, the amount you owe, and the terms for resolving the balance.

A settlement may allow you to pay less than the full amount, while a payment plan can divide the balance into smaller monthly amounts. Get the agreement in writing before making a payment and keep records showing how much you paid.

If you have several charge-offs or other delinquent debts, decide which balances to address based on your available income and monthly expenses. A nonprofit credit counselor can also help you review repayment options and create a debt management plan that fits your budget.

How to Remove a Charge-Off From Your Credit Report: Wait It Out

If none of the above strategies have worked on your creditor, then you can wait it out. Charge-offs can remain on your credit report for up to seven years before disappearing. Certainly, having such a negative entry on your credit report for seven years isn’t ideal. But as time goes on, the weight that it has on your score lessens a bit. Its existence on your credit report will still limit your access to big loans, like a mortgage.

Bottom Line

You are responsible for your debts, no matter how far behind. Ideally, you’ll avoid falling so far into debt that a creditor sends your account to collections as a charge-off. But should you land yourself with a charge-off, it’s important you work to remove or lessen its harm as soon as possible. Contact your creditors and the credit bureaus directly and immediately, keeping records of everything. Otherwise, this could keep you from getting a mortgage or auto loan for seven years.

Tips for Managing Debt

• A financial advisor can offer valuable insight and guidance on debt management. Finding one doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Be sure to make payments on time and in full as much as possible. That way, you don’t add on more and more to what you owe. If you need help making a payment plan, online debt calculators can lead you in the right direction
• If you’ve not yet reached a charge-off, you may want to look into a balance transfer card. This allows you to transfer a loan balance to the card that has a time period where you can pay off your debts without a hefty interest rate.

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