Your credit score is important for buying a home, getting a car loan in your name, or just opening a credit card account. A significant part of your score is based on how you manage payments for loans, credit cards, and other types of credit. Having an account fall delinquent can lead to a charge-off, which can cost you major credit score points.
Negative information, including charge-offs, can remain on your credit history for up to seven years. But it may be possible to remove a charge-off from your credit sooner than that so you can begin rebuilding your credit score.
- A charge-off means the creditor has written off your account as a loss and closed it to future charges.
- Charge-offs can be extremely damaging to your credit score, and they can remain on your credit report for up to seven years.
- Having an account charged off does not relieve you of the obligation to repay the debt associated with it.
- You may be able to negotiate for the removal of a charge-off from your credit with your creditor or debt collector.
What Is a Charge-Off?
When a creditor gives you a loan or line of credit, it assumes you're going to pay back what you borrow. If you fall behind or stop making payments altogether, your account can become delinquent. Once an account has been delinquent for an extended period of time—typically meaning it's 120 to 180 days late—the creditor may charge it off.
A charge-off means your account is written off as a loss. At this point, the account may be assigned or sold to a debt collection agency. The debt collector can then take action against you to try to get you to pay what's owed. That can include calling you to ask for a payment, sending written requests for payment, or even suing you in civil court to try and obtain a judgment.
When a Collection Agency Steps in
Charge-offs don't end your obligation to repay the debt.
Even if your original creditor no longer owns the account, you'll still owe the debt to the collection agency that acquired it. Charge-offs and other negative account history, such as late or missed payments, can stay on your credit reports for up to seven years.
Depending on which credit bureaus a debt collector or creditor reports to, a charge-off could show up on just one or all three of your credit reports.
How to Remove a Charge-Off From Your Credit Reports
Removing charge-offs or other negative information from your credit reports can be tricky. Technically, negative credit information that's accurate can legally remain on your credit reports for seven years, and some types of negative information can stay even longer.
That being said, there are some remedies for dealing with charge-offs. The first is disputing a charged-off account if you believe it's being reported in error. Federal law allows you to initiate a dispute with the credit bureau that's reporting information you believe to be inaccurate. The credit bureau then has to investigate your claim and if there is an error, correct it or remove it.
All three credit bureaus allow you to file disputes online, which may be the fastest way to get credit errors addressed.
When to Negotiate with a Creditor
This likely won't work if the charged-off account belongs to you and all the information being reported about it is accurate. In that scenario, you could try negotiating with the creditor or debt collector to update or remove the charge-off account from your credit file. This is called "pay for delete," and essentially you're asking for the account to be removed from your credit reports in exchange for a fee.
Pay for delete arrangements are legal under the Fair Credit Reporting Act, but there are a few things to know. First, creditors aren't obligated to honor your request and remove charge-offs from your credit. So while you can ask for a pay-for-delete, there's no guarantee that a creditor or debt collector will agree to it.
Second, if they do agree, you'll likely need to pay the account in full. However, if an account has been delinquent for some time, the creditor may be willing to accept a settlement in which you pay less than the full amount. Either way, you'll almost certainly have to pay something toward the debt.
If requesting a pay for delete arrangement, be sure to make your request in writing. And keep copies of all correspondence between yourself and the creditor or debt collector regarding the deletion.
The "Credit Repair" Option
Another option is to work with a legitimate credit repair company to try to get charge-offs or other negative information removed from your credit file. While this can save you time, there's typically a fee involved, and in most cases, the credit repair company can't do anything for you that you couldn't do by yourself.
Worse, some credit repair companies are just thinly disguised scams whose only goal is to defraud people who need credit help.
Be wary of any credit repair or debt relief company that asks for money upfront or promises results that seem too good to be true. Those are red flags that the company may be a scam.
When Removing a Charge-Off Isn't Possible
If you've tried to negotiate with a creditor for the removal of a charge-off but hit a dead end, your only option may be to simply wait it out until the seven-year mark passes. Once that period is up, the charge-off will fall off your credit report naturally and no longer be included in your credit score calculations.
Again, this doesn't mean that you can ignore the debt altogether. You're still legally obligated to pay it. At some point, however, the statute of limitations on the debt may expire. When that occurs, debt collectors can no longer sue you to recover the money. The statute of limitations for different types of debt varies from state to state.
Rebuilding Your Credit Rating
Since the charged-off account will still show up on your credit report, it will continue to impair your credit score. But the good news is that as charge-offs and other negative information ages, its overall impact can lessen.
In the meantime, you can work on rebuilding a positive credit history by doing things like paying your bills on time, keeping your credit utilization ratio low, and limiting how often you apply for new credit.
Be careful to avoid accidentally restarting the clock on the statute of limitations for debt. Making a promise over the phone to repay the debt, for example, can reset the timeline in which a creditor can try to collect on it.