How (And Why) To Remove A Charge-Off From Your Credit Report

One of the worst items that can show up on your credit report is a charge-off — a debt you’ve stopped paying. A charge-off damages your credit report, but you can try to remove it - learn how to do it yourself here.

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By Lauren Bringle, AFC®

What is a charge-off?

When you’ve stopped making payments on a debt, the creditor records your account as a lost cause — a “charge-off.” The creditor then often sells your debt to a third-party debt collector.

This can occur on an auto loan or student loan, with a credit card issuer to whom you owe credit card debt, or on other kinds of personal loans.

Even though the lender has stopped trying to collect your debt, that doesn’t mean you’re free from the responsibility of paying it. Nor does the debt disappear from your credit report. In fact, a charge-off remains on your credit report for up to seven years.[1]

A charge-off can occur even if you’ve been making payments, but they haven’t been enough to meet the monthly minimum, and your account goes into collections anyway.

In the case of a charge-off, only a few things really change: You no longer owe a debt to the original lender, but to the collection agency. And future creditors will see a negative mark against your credit.

Ways to remove a charge-off from your credit report

To try removing a charge-off from your credit report, your options are to 1) identify the charge-off as an error and file a dispute to have it removed; or 2) pay the debt and then 3) try to negotiate a deletion.

The main benefit of addressing a charge-off is to show future creditors your responsibility and willingness to work at paying off your debts and cleaning up your credit. However, it’s important to know that if a charge-off is accurate, it’s not likely that creditors or credit reporting agencies will remove it from your credit report.

So when companies say they can remove accurate but negative information such as a charge-off from your credit report, they’re usually promoting a credit repair scam. They cannot accomplish this. Besides wasting your time and money trying to dispute accurate charges, such credit repair scams also may demand that you pay fees upfront[2]. These are red flags.

While it can help to consult a legitimate credit expert, the simple fact is that most credit repair companies can’t do anything for you that you couldn’t accomplish yourself through research and negotiation.

1 - Dispute an inaccurate charge-off

If you check your credit report against your other records and discover the charge-off is an error, you can dispute the charge.

File a dispute with the credit bureaus (Equifax, Experian and TransUnion), and ask the lender or debt collector to correct their records. Gather in writing all the information you can compile about the debt. The more evidence you can provide in support of your case, the better.

Things to look for that may indicate inaccurate charges include a balance that’s much higher than you think it should be. This could indicate a case of fraud or identity theft. But first, be sure the error isn’t yours: Ask the creditor to clarify any additional amount beyond what you think you owe and explain why it’s there.

Also, be on the lookout for accounts that are listed as “open” in more than one place. If your account has been sold more than once, being passed along to other collection agencies, only the most recent collections account should be open. All the others should be listed as “closed.”

If the entry can’t be verified, credit reporting agencies are required to correct or remove the charge-off in compliance with the Fair Credit Reporting Act.[3]

2 - Arrange a payment plan

Even after it’s been charged off, you can negotiate with the lender to set up a payment plan for paying off your debt. Talking to the original lender is a better option than talking to the collection agency because debt collectors have no control over what the creditor reports to credit bureaus.

Know how much you’ll be able to pay before negotiating: The more you’re able to pay initially, the more leverage you’ll have to negotiate with.

When making payment arrangements, explore lump-sum or installment options. Depending on your ability to pay, one option may be better than the other.

You may be able to negotiate a lower settlement by paying the balance in a lump sum. But if you can’t pay the full amount right away, it might be better to pay in installments rather than waiting, so you can avoid accruing more interest on your debt.

When negotiating, it’s helpful to understand that older debts may be different than more recent obligations. Because of this, a creditor may be willing to accept a settlement that’s less than the full amount. If this is the case with your debt, it can be helpful to start negotiating at a lower level: Consider starting at 50% of the initial debt amount, then go from there.

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3 - Negotiate a “pay for delete” agreement

Once you’ve made an agreement to pay the debt (or even part of it), you’ll have a little bargaining power to ask the creditor to remove the charge-off from your credit report. This option is often called “pay-for-delete.”

The goal of a pay for delete arrangement is to achieve one of these outcomes:

  • Get the charge-off removed from your credit report. This is your best-case scenario because the charge-off will no longer affect your credit.

  • Get the status changed to “paid” or — second choice — “closed.” This is the most common occurrence, and the best alternative if the creditor won’t accept removal.

  • Get the status changed to “settled.” This is the least preferred solution, since “settled” usually denotes partial payment when the account has already gone to collection.

Know that creditors aren’t legally required to remove charge-offs at your request. They’re more likely to negotiate if you’re paying them something toward the debt.

Strategies for addressing a charge-off

When trying to get collections removed from a credit report, consider these basic strategies:

Find the charge-off on your credit report. You can get a copy of your free credit report each year at annualcreditreport.com.

Then, determine if the charge-off is accurate. If it’s not accurate, you can move directly to disputing it. But if you determine that it is accurate, move forward and gather more info about the debt:

  • Is it paid or unpaid?
  • What is the exact amount?
  • Who owns the debt (the original creditor or a collection agency)?
  • For how long has it been on your report?

Once you have all the information in hand, contact the creditor to initiate the next part of the process.

Be sure you get everything in writing along the way. You can contact the creditor by phone, but don’t settle for a verbal agreement: Get everything formally spelled out in writing before you make any payments.

This helps you keep control of the process and avoid being taken advantage of. It’s also another reason to negotiate directly with the creditor, if possible, rather than a debt collection agency: You know who you’re dealing with.

Sample letter to remove a charge-off from your credit report

Here is a sample letter showing how to construct your charge-off removal request. You can download a template by clicking the button below.

[Date]

[Your name]
[Your address]

[Debt collection agency’s name]
[Debt collection agency’s address]

Re: Account Number [insert account number here]

Dear [insert collector’s name] [or Collection Manager],

I am writing in reference to a debt claimed under the account number listed above. I wish to settle this debt in full without prejudice, in return for removal of its “charge-off” status with any credit reporting agencies that you have reported to.

In return for your removal agreement, I am willing to pay off the debt in the full amount of [insert amount]. I offer this payment in exchange for your written and signed confirmation that this debt will be cleared completely from the records of all credit reporting agencies and all other references to this account.

If the terms discussed in this document are acceptable, please acknowledge and accept them in a letter written on your company’s letterhead. Once I receive notice of your agreement, I will pay the debt via [insert form of payment].

As granted by the Fair Debt Collection Practices Act, I have the right to dispute this alleged debt. This offer is valid for 14 days from the date of receipt, after which it will be withdrawn, and I will exercise my right to full verification.

Please note that I will revoke my offer if I do not receive your response to this letter within the specified time frame.

I look forward to your response.

Sincerely,

[Your name]
[Your address and contact information]

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Charge-off FAQs

Multiple factors go into the creation of a charge-off, as well as several kinds of potential repercussions from incurring one on your credit report. Here are answers to some frequently asked questions.

What happens with a charge-off?

If you have a past-due payment (or more than one), or you don’t keep up the minimum amount for payments, your account will become delinquent.

Once your account has been in delinquency for 120-180 days, the creditor will probably try to communicate with you. But if the creditor decides they can’t get the full amount owed from you, they’ll give up and classify your balance as a charge-off.

Then, the original creditor usually will sell the debt to a debt collection agency afterward. The charge-off on your credit report will be moved to a new collection account.

Debt collectors don’t always use scrupulous tactics to try to get money from you, so be prepared. Don’t give a collection agency access to your bank account, and be sure you demand written proof that the agency owns the debt in question and has a legal right to collect it.

Under federal law, within five days of contacting you, a debt collector must send you certain information.[4] This includes 1) a written notice detailing how much you owe, 2) the name of the original creditor to whom you owe it, and 3) instructions for how to proceed if you don’t think the debt is yours.[5]

Can you be sued for a charge-off?

Selling your debt to a collection agency isn’t the only option a creditor has, though. Lenders also can sue you in civil court to get you to pay the balance. Debt collectors can sue you, too, if they’ve purchased your debt from the lender.[4]

You may not face a lawsuit right away: Creditors may wait up to 18 months before filing a case against you. But it can happen in as little as six months, as well.

If you receive a summons to appear in court, you usually will have 30 days to respond. If you don’t respond, the court may grant a default judgment in favor of the creditor, allowing them to garnish your wages or bank account.

The good news is that most creditors want to avoid the cost of going to court and can be open to a settlement if you show a willingness to negotiate.

Should you pay a charge-off?

After collection attempts stop, it can be tempting to not pay a charge-off. But paying is always better than not paying because you’re still legally responsible for the debt until it’s paid or settled.

A paid charge-off means you’ve made all the required payments, including the principal and any interest that has accrued. A settled charge-off means you’ve negotiated to pay a debt collector less than the full original amount.

You also can discharge a debt by filing for bankruptcy, damaging your credit report further.

If you don’t pay, you could wind up owing even more, depending on the terms of the debt agreement. This is because, under the Fair Debt Collection Practices Act, collectors of certain kinds of debt can still charge you interest on unpaid balances until they recover the money you owe.[6]

In addition, although paying doesn’t remove the debt from your credit report, not paying can hurt your credit history. A poor payment history could diminish your chances of getting a loan in the future.

Most mortgage lenders or credit card issuers will require a solid payment history and a certain level of debt-to-income ratio, which can indicate your ability to make payments. Even if you do get a loan or credit card, you’ll likely pay higher interest rates than if your credit was in good standing.

How does a charge-off affect your credit?

A charge-off can stain your credit report for seven years, which is the account’s original delinquency date, meaning the date you stopped paying the account.[7]

According to FICO®, delinquent payments are logged in increments of 30 days, so reaching the 120-180-day threshold for charge-offs means an account accrues multiple “hits” on a borrower's credit report.[8]

Your payment history is the most important factor in determining your FICO score, accounting for 35% of the total.[9] A charge-off can be especially damaging to your credit scoring because it indicates you haven’t been late on just one or two payments; you stopped making them for an extended period.

Each time you miss a payment or make a late payment, it puts negative information on your credit record. But accounts that reach charge-off status usually also enter collection account status.

A collection account creates another category of blemish on your credit, in addition to the missed payments that got you to that point in the first place. These can combine to lead to bad credit.

Does paying a charge-off improve your credit score?

The short answer is that paying a charge-off will not immediately raise your score by itself, but it will signal to future lenders that you’re willing to work to pay off your debts. It also will lower your overall debt amount, which may raise your score in the long run.

Your credit will likely fare best if your charged-off account is designated as “paid” rather than simply “closed.” If you can’t achieve that, it’s still better if a collections account is classified as “settled” instead of still “open.”[10]

Again, it’s better to pay than not to pay. But it’s also important to know your rights, the specifics of your situation, and how best to proceed as you determine how to deal with your charge-off and, in the long run, rebuild your credit.

Sources

  1. Self Financial. “What Does a Charge-Off Mean on Your Credit Report?”
    https://www.self.inc/blog/charge-off-credit-report. Accessed April 27, 2021.

  2. Federal Trade Commission. "Credit Repair Organizations Act," https://www.ftc.gov/enforcement/statutes/credit-repair-organizations-act. Accessed April 27, 2021

  3. Federal Trade Commission. “Fair Credit Reporting Act,” https://www.ftc.gov/enforcement/statutes/fair-credit-reporting-act. Accessed April 27, 2021.

  4. Federal Trade Commission. “Debt Collection FAQs,”
    https://www.consumer.ftc.gov/articles/debt-collection-faqs. Accessed April 27, 2021.

  5. Federal Trade Commission. “Don’t recognize that debt? Here’s what to do,” https://www.consumer.ftc.gov/blog/2015/12/dont-recognize-debt-heres-what-do. Accessed April 27, 2021.

  6. Federal Trade Commission. “Fair Debt Collection Practices Act,” https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-debt-collection-practices-act-text. Accessed April 27, 2021.

  7. Experian. “What Is the Statute of Limitations on Debt?” https://www.experian.com/blogs/ask-experian/what-is-the-statute-of-limitations-on-debt/. Accessed April 27, 2021.

  8. MyFico.com. “What are the different categories of late payments and how does your FICO® Score consider late payments?” https://www.myfico.com/credit-education/faq/negative-reasons/late-payments. Accessed April 27, 2021.

  9. MyFico.com. “What is Payment History?” https://www.myfico.com/credit-education/credit-scores/payment-history. Accessed April 27, 2021.

  10. The Balance. “Rebuild Your Credit After a Collection or Charge-Off,” https://www.thebalance.com/rebuild-your-credit-after-a-collection-or-charge-off-960805. Accessed April 27, 2021.

About the Author

Lauren Bringle is an Accredited Financial Counselor® with Self Financial – a financial technology company with a mission to increase economic inclusion by helping people build credit and savings so they can build their dreams.

Editorial Policy

Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).

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Written on June 21, 2021
Self is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@self.inc.

Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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