The credit score can be used to purchase a house, get a car loan, or open a credit card. Your credit score will be primarily determined by handling credit card and loan payments. A late account can result in a charge that can damage your credit score.
Negative information such as charge-offs can stay on your credit report for up to seven-year. However, it might be possible to get rid of a charge-off sooner so that you can start rebuilding credit.
- A charge-off is when a creditor writes off your account as a lost and closes it to future charges.
- Charge-offs can have a devastating effect on your credit score and stay on your credit report for up to seven years.
- You are still responsible for repaying the debt.
- Your creditor or debt collector may be able to negotiate to remove a charge from your credit.
But the question arises How To Remove A Charge-Off Without Paying but first lets understand what a Charge off is
What Is A Charge-Off?
When a creditor stops collecting, closes your account and declares the debt as a loss, a charge-off will appear on your credit card account.
Your credit card will record a late payment if your payment is past due. This is terrible news for your credit. If your creditor decides that the account is not worth it, the status will change to “charged off”. This is a terrible thing for your credit.
Most creditors will charge accounts after six months. However, the timeframe may vary.
A charge-off does not constitute a collection account. Your creditor can sell your account to a collection agency, and the charge-off balance will be reduced to zero. For seven years, the charge-off will remain on your credit report.
The collection agency will open a separate account with the credit bureaus. This account will be listed on your credit report as a collection account.
Here are some points to keep in mind:
- The debt is still due. Your liability does not disappear by charging you.
- Your account could be transferred to collections. You will be dealing with a collection agency rather than your original creditor if it does.
- Your credit score will drop. A charge-off, which is a severe negative record that can significantly affect your credit score, will result in your credit rating falling.
A Charge-Off Does Not Mean Your Debt Is Forgiven
You cannot remove a charge-off from credit records without proving that it isn’t yours and the entry is incorrect.
Your debt will not be forgiven if you are charged off.
Charge-offs do not make a debt go away. The law still obligates you to pay the amount. You can still contact the creditor to make a payment if the debt is on your credit report. This will change the status of the charge to “paid off”.
Although the listing will be retained in your credit file, most lenders consider a paid charge off less damaging than an unpaid one.
How To Remove A Charge-Off Without Paying
There is no way to remove a charge-off from your credit reports except for errors. But it’s worth the effort. These are some possible methods.
Negotiate a payment agreement with your creditor if they have not sold your debt. You could negotiate a payment plan or a settlement which allows you to pay less than the full amount.
Mention if you have missed multiple payments because of a major event such as a medical emergency. Mention a positive payment record up to the time of trouble. A creditor may be willing to work with you on a payment plan to keep the debt off your credit report.
Negotiation is harder if the creditor has sold their debt to a collector. Because it is no longer their debt, the original creditor will not be motivated to work with you. In such a case, the original creditor has no incentive to work with you because it’s not their debt anymore.
Negotiate a settlement or payment plan with your creditor. Get a written commitment from them. It would be best if you only offered what you could afford.
A settlement would be listed on your credit report if settled for less than the original amount. Although it isn’t as severe as a charge off, it is still derogatory.
What Happens If The Creditor Refuses To Negotiate?
A creditor cannot be forced to take a legitimate charge-off off your credit report. Even if you pay it, it will remain on your credit record for seven years.
A creditor who charges off debt will often sell it to a third party debt collector. If this happens, a new entry in your credit report will be created under the heading “collections”. This Collections entry will also lower your credit score.
You may be able to avoid having the collection entry placed in your credit report if you can pay the debt off or reach a settlement with the collection agency before they report to the credit bureaus.
Dispute The Charge-Off
It is usually a waste to dispute a legitimately reported charge-off. However, there are some cases where disputing a charge-off may be the best.
- You are not responsible for the debt.
- The debt was paid.
- Since the first delinquent debt was incurred, it has been more than seven years.
If you feel that a charge-off on credit reports fits one of these categories, you should use the credit reporting dispute process.
You should regularly check your credit reports to identify any incorrect information. If you discover errors, immediately start the dispute process.
Any of the three major credit reporting agencies, Equifax or TransUnion, can be used to file a dispute. A simple dispute letter will be sent out identifying you and the account number of the item you are disputing and explaining the nature and scope of the dispute.
It is important to be able to prove your claims.
If one credit bureau finds that your dispute is valid, they will forward it to the other. All three credit bureaus can handle your dispute.
Send A “Pay-For-Delete” Letter
Creditors do not like to charge debts. This makes the debt almost worthless. If they sell the debt to collection agencies, they will only get pennies per dollar.
A pay-for-delete agreement will be made if the creditor agrees that the charge-off record is deleted. Although there is no guarantee that the creditor will accept the deal, they aren’t required to delete the record.
Make sure your letter is concise. It would help if you only offered what you could afford. Before you pay, make sure the creditor accepts the arrangement.
Do I Need To Seek Help From A Credit Repair Agency?
Lexington Law, a credit repair company, will handle this whole process. They will send you dispute letters and pay for deletion letters to remove negative items. They will charge you for their services.
If there are only a few negative credit records on your credit report, you might be better off writing these letters yourself. There is nothing that a credit repair agency can do that you cannot do on your own. It might be a better idea to use your money for debt repayment.
A credit repair company may be worth considering if you have poor credit or complex credit history with many derogatory records. It’s essential to be clear about the costs and that you are convinced the benefits will outweigh the expense.
Although credit repair has a bad reputation, there are legitimate businesses. To ensure that you are hiring the best, do your research.
This Tip On “Credit Repair” Is Worth Your Attention.
Not all credit repair companies are reputable. They claim they can remove legitimate accounts from your credit report. They might advise you to dispute any negative credit record or offer to do it on your behalf (for a fee).
Fair Credit Reporting Act (FCRA) requires credit bureaus within 30 days to verify your account. Sometimes, even legitimate creditors will not verify your account, which may be deleted.
This is especially true for older collections accounts passed from one collector to another. This is one situation where disputing ownership of an account could be worthwhile. It is possible that information was lost when the account was transferred.
This strategy doesn’t work in most cases. Creditors are familiar with this process and have the systems and information to handle it. It could also be harmful to force creditors into updating their records.
It may not be possible to remove an item permanently even if you succeed. Creditors may report a debt for up to seven years, starting from the initial delinquency date. If the account is legitimate, it will likely reappear.
Should You Pay Charged-Off Accounts?
You are still liable for the debt. You still have to pay the debt.
If you have an unpaid account, you will be dealing with a collector. Your situation won’t improve. You could be facing a lawsuit or wage garnishment if you allow debt collectors to make your life miserable.
The paid charge-off will remain on your credit report and will continue to affect your credit score. The effect of a charge-off that is less than the original amount will be more significant. Both are better than a charge-off and a collection account.
It is in your best interest to pay the account or settle it before it goes into collections.
Pay Off debt From Other Accounts First
While paying a charge-off account will benefit you, it might not be your top priority, mainly if the account is already in collections. This is where the credit damage is done already, and you should avoid legal action.
You may want to make payments on past-due accounts first, even if they haven’t been charged yet. You want to make sure that your funds are used for the best possible use, even if you don’t have enough money to pay off debts.
A payment plan is essential. You should review your debts to determine which ones you want to prioritize based on their interest rates, delinquency status and other factors.
Credit counselling is a good option if you have trouble prioritizing and organizing your debts.
How To Find Out If You Have Charge-Offs Or Collections On Your Credit Report
A rapid drop in your credit rating is the first sign that your credit report has been charged. A collection agency will likely send you a letter or phone call to alert you of the existence of a collection account.
These signs can signify that you have a problem with your credit.
Each year, you are entitled to a free credit file from all three major credit bureaus. Get these directly from the source: annualcreditreport.com. You don’t need to look for another provider, paid or unpaid.
Each account should be checked individually. You will see the words “charge off” in your accounts. A separate section will contain information about collection accounts.
Not all creditors report to the three credit bureaus. A charge on an account will appear only on the credit reports of the credit bureaus to the creditor reports. Most collection agencies report to all three major credit reporting bureaus.
What Does An Unpaid Charge-Off Do To Your Credit Score?
FICO is the most widely used credit scoring model. Your payment history is an essential component of your FICO credit score. Lenders are interested in knowing if you can make your payments on time. The last thing they want to see is late payments, charge offs, or collection accounts.
Your credit score will fall if you fail to pay a bill. Your credit score will fall again if the payment is not made within 30 days. Each subsequent report that does not show the debt paid will cause it to drop further.
It is usually six months late when a debt is charged-off. This will cause significant credit damage. Your credit rating will be even worse after the charge-off. You will suffer even more damage if the account is sent to collections.
It is impossible to predict how much credit score will drop due to late payments, charge-offs, and collection accounts. This will depend on your credit score, your credit report, and what information you have about your credit.
It is possible to expect a significant drop in your credit score.
A significant drop in your credit score can be a problem. Even if you don’t intend to borrow now, it could be soon. It might be difficult or impossible for you to obtain new credit, such as a private student loan, home loan, or auto loan.
People with bad credit often resort to payday loans and other predatory loans due to their inability to qualify for fair-priced loans.
Is A Charge Off Worse Than A Collection?
A charge-off can be worse than a collection account in some ways. After the original creditor has sold your account to a collection agent, they are no longer motivated to negotiate with you. It’s nearly impossible to remove a credit charge-off from your credit reports unless it is an error.
You can at least use the pay for deletion arrangement to have a collection account closed.
Because they are often linked, it isn’t easy to compare charge-offs with collection accounts. A collection account will often follow a charge-off.
Yes, generally. Although you have less power to remove them, the fact that you owe money is still valid. However, all negative accounts can affect your credit score.
What Happens If My Debts Are Overwhelming?
Don’t panic if your debts are beyond your ability to pay. You still have choices. You can still get out of a difficult situation.
Talk To Your Bank About A Payment Plan
Creditors don’t want debts to be charged off or sent to collections. They are at a complete loss. They will likely be open to working with you if you offer them any chance of collecting.
Offer a payment plan to your creditors. Offer a lower amount if you are unable to pay the total amount. Don’t lie and offer less than you can afford. Although there are no guarantees, there is a good chance creditors will negotiate.
Send A Letter of Goodwill
People often find themselves in debt because of circumstances beyond their control. This could be due to job loss, illness, divorce, or other life events. Write to your creditors explaining the situation and asking for a payment plan.
Most creditors will work with your case if you have a track record of making regular payments. If you can provide evidence that proves your financial problems are not your fault, it will be a big help.
Numerous credit card issuers offer hardship programs to cardholders who have suffered adverse life events. These programs may not be advertised. Ask your card issuer.
Credit Counselling/Debt Management Plan
Non-profit credit counsellors can be an excellent option for people with overwhelming debt. Many offer a free initial session where they can help you organize and review all your options.
Many credit counsellors offer Debt Management Plans. A Debt Management Plan will allow you to make one monthly payment to your credit counselling agency. The agency will pay your creditors and negotiate better deals.
A Debt Management Plan is a disciplined and committed way to get out of debt. Be sure to choose a credit counselling agency that is legitimate.
Consolidate Your Debt
Consolidating your debt means taking out a new loan and using it to repay several existing loans. This will simplify your payments, as you only need to make one monthly payment. You may also be able lower your interest rates.
If your credit score is not in the best shape, debt consolidation may be complex. It is possible that you won’t be able to get the loan you need, or the interest rate might be too high for consolidation to be an effective strategy.
You may be looking for a consolidation loan to consolidate your debts and have credit problems. Personal loans from OneMain Financial, Avant, and Upstart are all options. They will also lend to those with poor credit or peer-to-peer lending programs like LendingClub, P2P Credit, and LendingClub.
Speak To A Bankruptcy Lawyer
Bankruptcy is an option if you have no other options to pay your debts. Bankruptcy does not mean financial ruin, but it is a chance to start over.
There are risks and associated costs. But many people emerge from bankruptcy in a better financial position than they were when they entered.
Many bankruptcy attorneys offer free consultations. They will review your case, assist you in deciding whether bankruptcy is right for you, and then explain the process. You can also look into bankruptcy through Upsolve. This free app is known as “TurboTax to bankruptcy”.
The Bottom Line
It’s crucial that you immediately take action if you have a charge-off on credit reports. Even if the charge-off is legitimate, it does not automatically disappear. You still must pay for it. You are still obligated to pay it.