How to Get a Charge-Off Removed From Your Credit

Characteristics of a Charged-Off Account

A charged-off account occurs when a creditor determines a debt is unlikely to be collected. This is an internal accounting adjustment where the creditor writes off the debt as an uncollectible asset. However, this does not eliminate the consumer’s legal obligation to repay the debt, which remains valid.

When an account is charged off, it appears on a consumer’s credit report as a negative entry. This action takes place after prolonged delinquency, signaling a high risk of default to future lenders and significantly lowering a credit score.

A charged-off account differs from a collection account. A charge-off originates from the original creditor, reflecting their decision to cease internal collection efforts. A collection account involves a third-party debt collection agency. Both are serious negative marks, but a charge-off indicates the original creditor’s action, while a collection account signifies a separate entity pursuing the debt.

The debt associated with a charged-off account is still legally owed. It may be sold to a debt buyer or assigned to a collection agency, who then has the right to pursue collection.

Strategies for Account Resolution

Addressing a charged-off account involves two strategies: paying the full balance or negotiating a settlement. Paying the full balance resolves the debt, and the credit report will update the account status to “paid.” The original charge-off entry will remain on the credit report, reflecting the historical delinquency.

Negotiating a settlement with the original creditor or debt collector can reduce the total amount owed. This involves offering a lump sum payment less than the outstanding balance. Creditors or collectors may agree to a settlement to recover a portion of the debt.

Before making any payment or agreeing to a settlement, obtain all terms in writing. This agreement should state the payment amount, whether it satisfies the debt, and how the account will be reported to credit bureaus. Without a written agreement, the payment may not be applied as intended or credit reporting may not reflect the agreed status. Retain copies of all correspondence and payment records.

A “pay-for-delete” arrangement involves removing a derogatory mark from the credit report in exchange for payment. This agreement is not permissible for creditors under standard credit reporting guidelines. Some debt collection agencies may agree to it, but federal regulations require accurate reporting of account history. Consumers attempting this strategy must ensure any such agreement is explicitly detailed in writing before remitting funds.

Disputing Account Information and Reporting Timelines

If a charged-off account contains inaccuracies, individuals have the right to dispute the information. The Fair Credit Reporting Act (FCRA) is a federal law governing the accuracy and privacy of credit reporting. To initiate a dispute, consumers should obtain their credit reports from Equifax, Experian, and TransUnion. Review the charge-off entry for errors such as incorrect amounts, dates, or if the account does not belong to them.

Disputes can be filed directly with the credit bureau reporting the inaccuracy, online, by mail, or by phone. The dispute should state the inaccurate information and include supporting documentation, such as payment records or correspondence. The credit bureau is required to investigate the dispute within 30 to 45 days. If the information is inaccurate or cannot be verified, it must be removed from the credit report.

A charged-off account remains on a credit report for seven years from the date of the original delinquency. This period begins from the first missed payment that led to the charge-off, not the official charge-off date. Even if the debt is paid, the negative mark remains for the full seven years, though its status may update to “paid charge-off.”

The credit reporting timeline differs from the statute of limitations for debt collection. The statute of limitations is a state-specific legal time limit during which a creditor or debt collector can file a lawsuit to collect a debt. These limits vary, from three to six years, but can be longer. Even if the statute of limitations has expired, meaning a debt is “time-barred” and cannot be legally pursued in court, the debt itself is not forgiven and can still appear on a credit report for the full seven-year reporting period.

Steps to Restore Credit

After addressing a charged-off account, establishing new positive credit history is important for improving credit health. This can involve obtaining a secured credit card, which requires a cash deposit as collateral, or a small personal loan. Consistently making on-time payments for these new accounts demonstrates responsible financial behavior.

Maintaining low credit utilization is another important step in credit restoration. This means keeping the amount of credit used below 30% of the total available credit.

Regularly monitoring credit reports from Equifax, Experian, and TransUnion is beneficial. This allows individuals to track their progress, identify any new inaccuracies, and ensure that positive payment activities are being reported correctly.