Over the years, working as a credit advocate, I’ve found that charge-offs are the most stubborn of all accounts to remove from the credit report. Now let’s dissect what these accounts are and how to address them effectively.
If an individual falls behind for 30 days on a credit card, line of credit or non-collateralized installment agreement the creditor will report a 30 late payment on the credit report. However, if a payment is not made for the duration of 180 days, the creditor will report the account as a charge-off.
A newly incurred charge-off is an account that
impacts the score very negatively, in cases where
it is the only negative account on the credit report, a perfect credit score may be reduced by as much as 100 points. In this scenario, a consumer may see their pre-existing credit line limits cut, when his/her creditors access the account for an annual review and see a charge-off on a credit report.
A charge-off status simply means the creditor was unable to get a payment from the consumer for over 180 days, after which by law the creditor had to report the account on the books as a bad debt. This does not mean the creditor was absolved of the debt. The creditor can legally still try to collect for the duration of the statute of limitations and also file suit in court in order to obtain a judgment against the debtor. The creditor is also legally permitted to either sell or assign the debt to a third-party collection company. Unless the charge-off is due to identity theft or fraud.
As discussed, the creditor can still legally collect on a charge-off, file suit or refer the account to a collection company as long as the account is within your state’s statute of limitations.
This is assuming that the account is not relating to fraud or identity theft issues, in which case you’d be able to do fraud and identity theft claims. The statute of limitations is the duration of time a creditor is allowed to collect on a debt in a specific state. Find out what the statute of limitations for debts is in your state. You should never dispute a valid and accurately reporting charge-off account if it’s within the statute of limitations and if it’s an account you are unable to settle in a lump sum payment. Disputing such a debt may put you on the creditor’s radar and they may be more likely to file suit.
A charge-off account will appear under the negative column of the credit report for up to 7 years from the date of last payment. You can figure out the date of last payment by looking at the payment history of the account and looking for the last 30-day late payment incurred on the account. The month before the last 30-day late payment was reported is the date of last payment, also known as the date of last activity. Adding 7 years to this date will give you the estimated date when the charge-off account is scheduled to fall off your credit report.
If the charge-off is valid and accurate then you can look into settling the charge-off. Although every creditor may differ, it is very common for them to offer negotiated settlements on charge-off accounts. The debtor is in the best position to negotiate with a creditor once the statute of limitations has expired on a debt.
Major banks such as Citibank, Chase, Bank of America, and Wells Fargo often settle debts for as little as 20% of the original amount charged off, however, such a low settlement is most likely when the charged-off amount was a few or several thousand dollars.
The lower the amount the less likely it is to get a significantly lower settlement. For instance, for a charge-off amount of $300 the creditor is not likely to reduce the settlement amount. However, if the account is being reported by a collection company, then you may be able to settle in exchange for deletion if you come to an agreement with the collection company. In the event, the collection account is linked to an unrecognizable or frivolous account then you can challenge it using debt validation. But this will not remove charge-off, which will still remain on the credit report as a paid charge-off account.
Charged-off accounts are not going to be deleted from the credit report even if you offer to pay the finance company. So simply paying off a charge-off account will not yield an appreciable boost to the credit score. There are other ways to remove charge-offs, which are discussed below.
A charge-off account may be removed from the credit report under any of the following circumstances using this special dispute letter, and using the specific dispute reasons listed below :
Unrecognizable Account: If the account in question is one you do not recognize, the account can be disputed as such. You will need to dispute the account as “no knowledge of account”
Fraudulently Opened Account: If you are certain the account is indeed fraudulent, where an identity thief opened an account without your knowledge, then you will need to file identity theft reports. These will need to be filed with the Federal Trade Commission and the local authorities. After which you will need to forward these reports to both the creditor and the credit bureaus in order to dispute the account as a “Fraudulently opened account.”
Fraudulent Charges on Account: If you incurred fraudulent charges on an account you opened that led to late, then the item can be disputed under the Fair Credit Reporting Act under the provisions afforded to fraud victims. You will need to file the requisite fraud reports, as described in the section above for fraudulently opened accounts. You will be disputing this item as having “ incurred fraudulent charges” and would specifically need to point out the fraudulent charges and then will need to submit the fraud reports to the credit bureaus and the creditor.”
Incorrect Amount, Last Payment dates, Payment history: If the account or any data pertaining to it, such as high credit, last payment date, or charge-off amount is reporting incorrectly, then the specific part of the account may be disputed with the credit bureaus. This may result in the complete deletion of the account if the information is not verifiable. In the event, the account is not reporting as a charge-off and simply just showing late payments then you can take this issue up directly with the creditor.
In this case, the account may be disputed with the three credit bureaus. There would be a high chance of removal for this type of account. You can dispute the item as “was authorized user on the account, please delete.” In addition, it would be advised to call the creditor directly and ask you to be taken off the account as an authorized user.
If you believe the account was last paid over 7 years ago, the account may be disputed under the 7-year statute for credit reporting and will be removed by the credit bureaus. You can dispute the account as “account for over 7 years old, please remove.” Keep in mind the 7 year period starts from the time of the last payment on the account and not from the account opening date.
Now comes the time to figure out what to do about this problem.
Take action now, begin to work on this problem. If you’re unable to do so or if you’re overwhelmed. Then, you may need to hire a professional.
From experience I can tell you that the sooner you take action to remove a charge-off, the better the chances of success.
So here’s what I suggest you do next:
Ok, so whether you take the self-help route or hire a professional really depends on your personal situation, budget, and the complexity of the charge-offs.
I’ve designed this quiz to help you make the best decision.