Keeping up with your payments is important to maintain a good credit score. Missed or late payments could lead to a charge-off, which can seriously harm your credit score and negatively affect your personal finance.
Charge-offs make it harder to get a loan or a credit card. Even a paid charge-off can appear on your credit report for several years.
The good news is that there are ways to remove an illegitimate charge-off without paying – or get a legitimate charge-off removed without paying the full amount.
Read on to find out what charge-off means, how it affects your credit score, and how you can remove it.
What is a Charge-Off?
A charge-off is when a creditor or lender writes off your debt as a loss for tax purposes because you’ve not repaid it in time.
For a lender to write off your credit card debt, you will typically be at least 90 or 180 days past the due date. At this point, the original lender typically sells your outstanding debt to a third-party debt collector. It becomes their job to collect the charged-off debt.
The debt collection agency can make phone calls, send letters, and even take you to court. The Fair Debt Collection Practices Act states that debt collectors can’t communicate with you at unusual times (before 8:00 am or after 9:00 pm) – so if you receive a call outside of normal hours, be wary of providing any sensitive information over the phone as it could be a scam.
When a creditor writes off your debt, a charge-off will appear on your credit report as a collection account. In addition to the charge-off, you’ll also have a lower credit score due to the missed payments resulting in the charge-off.
These factors can seriously affect your credit score, causing damage that’s difficult to repair. Future lenders won’t see you as reliable because you’ve not been able to make monthly payments and are a lot less likely to work with you.
If you manage to get a loan, you may only be offered higher than usual interest rates or be asked to pay more upfront because of the charge-off.
How to Know if You Have a Charge-Off On Your Credit Report
If you have a charge-off account, the first thing you might notice is a sharp drop in your credit score. You may receive a call, email, or a letter from a collection agency.
The best way to know is to generate an up-to-date credit report. While there are several paid credit report services, free credit report options exist.
You can generate a free credit report annually from each of the three major credit bureaus:
- Equifax
- Experian
- TransUnion
Get this report by visiting this site: annualcreditreport.com.
When you’ve downloaded your credit reports, check them carefully one by one. Look for charge-offs or collection accounts (these typically appear in a different section).
It’s important to note that not all creditors report to all three credit bureaus, so a charge-off account may only appear on the credit report of the bureau the creditor uses.
However, collection agencies will typically report to all three credit bureaus.
How to Remove a Charge-Off Without Paying
Charge-offs stay on your credit record for a long time: typically for up to seven years. A charge-off (like any other negative information on your credit report) can lead to bad credit and make it harder to qualify for new credit (e.g., mortgages, loans, or the best credit cards).
When you apply for these services, the loan issuer checks with credit reporting agencies if you’ve missed payments and have charged-off accounts.
So, how do you remove a charge-off? There are two types of charge-offs. Whether you can get it removed depends on its type.
Types of Charge-Offs
A charge-off can be legitimate or illegitimate. Depending on the type of debt, the steps you can take to remove it differ.
1. Legitimate Charge-Offs
Removing a legitimate charge-off from your credit history is more difficult. Accurate payment history of many missed payments to the credit card issuer puts you (the borrower) in a difficult position. You’ll need to pay at least some of your outstanding debt to have it removed. You can do several other things to deal with this – we’ll go into more detail later in the article.
2. Illegitimate Charge-Offs
However, your charge-off may have happened in error. If you find a charge-off account that you don’t recognize or think your charge-off is an error, removing it is much easier. There could be several reasons a charge-off happens in error, such as fraud or simply a mistake on the credit bureau’s part. The Fair Credit Reporting Act (FCRA) allows customers to initiate a dispute to remove an illegitimate charge-off through any of the three main credit bureaus.
How to Initiate a Dispute through Equifax
If you believe a charge-off was made in error and needs to be fixed, you can dispute incorrect information on your Equifax credit report.
Initiating the process through the credit bureau’s online dispute system is easy.
Here’s what you need to do to file a dispute:
- Click “Get started” or “Submit a dispute.”
- Follow the on-screen instructions to file your dispute.
Once you’ve completed a dispute, Equifax will investigate your claim, and you’ll have a result within 30 days. If the credit bureau finds that the information is incorrect, they will fix it on your credit report without you having to do anything else.
To check whether a result is ready, return to the online dispute portal and click “Check a status.”
How to Initiate a Dispute through Experian
You can initiate a dispute with Experian via mail or online.
Initiating a Dispute by Mail
You can go down the traditional route and write a dispute letter. Remember to include the following information:
- Your name and surname, including the middle initial and suffix (e.g., Jr., Sr., III, etc.).
- Your Social Security number (SSN). If you don’t have an SSN, include a note to inform the credit bureau.
- Your date of birth.
- Your address(es) for the past two years.
- A copy of an official, government-issued identification card (e.g., state ID card, driver’s license, etc.).
- A copy of a financial statement or a bill (e.g., electricity, water, another utility bill, a bank statement, etc.).
- A detailed outline of each item on your report that you believe is inaccurate. This part is particularly important – it needs to be clear and easy to understand. You must also include the account number and explain why you think the information is incorrect.
Initiating a Dispute Online
Generally, it’s easier and quicker to dispute a charge-off online.
Here’s what you need to do:
- Go to Experian’s online dispute center.
- Click “Start a new dispute online”
- Follow the steps on-screen to sign in and dispute the charge-off.
- To see an update on your dispute, you’ll need to sign in to your Experian
Initiating a Dispute through TransUnion
If you want to remove a charge-off from your TransUnion credit report, you’ll need to follow similar steps to the above.
TransUnion has an online dispute page where you can initiate the process quickly and efficiently.
Here’s what you need to do:
- Go to the TransUnion online dispute page.
- Click “Start dispute” near the top of the page.
- Follow the on-screen instructions to complete the dispute.
You will need to open a new TransUnion account (which is free to do). You’ll then be able to check the status of your dispute by logging in to your account.
If TransUnion validates your dispute, they will update the debt appropriately without you needing to do anything else. If the credit bureau does not validate your dispute, you can add a 100-word statement explaining the debt.
Other Ways to Remove Charge-Offs
Removing the charge-off won’t be as easy if it isn’t an error. However, there are several things you can do.
1. Negotiate
If the creditor (e.g., the credit card company) hasn’t sold your outstanding debt to a debt collection agency, you can negotiate a payment arrangement. This arrangement could be a settlement or payment plan that allows you to pay some of the outstanding debt (but less than the total amount).
The key when negotiating is to help the creditor understand if any special circumstances made you unable to make on-time payments. These could be a one-time major event like a death in the family or a medical crisis.
Communicating this information could be particularly effective if your payments were on-time until then. The creditor can set up a payment plan where you agree to pay back a certain amount within a set time frame.
You could negotiate the minimum payments you can make and reduce your debt without having to pay all of it back in full at once. If the creditor agrees to a payment plan, make sure you get a written confirmation.
If you agree on a settlement, it will still appear on your report. It isn’t as harmful as a charge-off – but it remains a derogatory entry that future lenders must consider.
If the creditor has already sold your debt, negotiating with them will be more difficult. The original creditor won’t have much incentive to collaborate with you because the debt is another company’s problem.
In this case, it’s best to focus on resolving the collection account.
2. Send a Pay-for-Delete Letter
If the charge-off is legitimate, try sending the creditor a pay-for-delete letter.
Generally, charge-offs are also bad news for creditors. When they sell your outstanding debt to a collection agency, they only get pennies for every dollar.
That’s why pay-for-delete may be an attractive option. In this letter, you’re offering creditors a deal: you will pay some of the debt if the creditor deletes the record of your charge-off.
There’s no guarantee the creditor will agree. They’re not obligated to accept and delete the record, but it’s worth trying.
When writing a pay-for-delete letter, keep it brief and clear. There are good templates online. The key is to only offer to pay what you can afford – there’s no point in overpromising or paying more than you can afford.
If the creditor accepts the pay-for-delete arrangement, get their commitment confirmed in writing.
3. Get Help from a Credit Repair Company.
Though this may seem counterintuitive, hiring a credit repair company is an option for some.
Credit repair companies handle the whole process of dealing with an unpaid charge-off for you. They send dispute and pay-for-delete letters and negotiate with creditors to get the best possible deal and remove the negative items.
What’s the catch? You have to pay them, of course. So, on top of being in credit card debt, you’re spending more money on getting the charge-off removed.
If you only have a few negative records, then dealing with the creditor yourself is better. Sending the letters yourself is relatively simple and free. Why pay a credit repair company when you could use the money to pay off the outstanding debt?
However, it might be best to leave it to the pros if you don’t have the time to deal with the creditor or have bad credit with a highly complicated credit history and several negative accounts.
Make sure you know how much you’ll pay them and choose a legitimate, highly-rated company.
Be Wary of Shady Credit Repair Companies.
The credit repair industry has a shady reputation. While there are some reliable, legitimate businesses, you may also come across non-reputable companies.
These companies may claim that they can get your legitimate charged-off accounts removed. Be skeptical about such promises – this strategy isn’t worth it.
Even if you successfully remove a legitimate item, likely, it won’t be gone forever. Creditors may report it in the future, so it’s likely to reappear.
4. Try Writing a Goodwill Letter
If your debt is overwhelming, consider writing a goodwill letter to your creditor. Some people fall behind on payments due to difficult circumstances (e.g., losing a job, a divorce, or a death in the family).
If this has happened to you, it might be worth writing to your creditors and explaining the situation. Include any evidence you may have to help your case.
Many creditors will agree to work with you if you’ve had good payment history up until the event or incident.
Frequently Asked Questions
Can my account be charged-off if I’m making payments?
Yes, the creditor can still charge off your account if you make payments below the minimum or file for bankruptcy.
When I apply for a new credit card, will a credit card company care about charged-off accounts?
Lenders need to know that you’re reliable and will be able to make payments on time – whether it’s a new bank account, an auto loan, or a new credit card. A charge-off shows that you’ve missed some payments in the past. Credit card issuers are likely to be more reluctant to work with you.
