A charge-off on a credit report is detrimental to credit scores, especially if it is recent. But how accurate is the information being reported about that charge-off?
What is a Credit Charge-Off
Banks, lenders and credit card companies will write off an account balance after a certain amount of time of nonpayment. That account balance is now a bad debt and referred to as a “charge-off.”
The time-frame of an account balance going to a bad debt is usually 180 days of non-payment. The creditor can no longer keep the debt on their books as an asset and therefore write it off as a bad debt.
But this does not mean you no longer owe the debt. The account may be transferred or sold to a collection agency and a negative credit mark will be entered on your credit reports by the creditor and the collection agency.
Charge-offs are difficult to remove but there are ways to dispute a charge-off which may result in it being removed from your credit report. You can request a creditor to substantiate each and every fact they are reporting about the charge-off. Demand that they prove a particular fact about the listing or delete it.
Unpaid charge-offs can also lead to a legal action. The original creditor or collection agency can pursue legal action as long as the debt is within the statute of limitations. After the statute of limitations has run, a debtor can no longer be sued and the debt basically becomes uncollectible.
“The best way to handle a charge-off is with a legitimate dispute of an error in reporting.”
7 Strategies to remove charge offs
The most important factor is to base charge-off disputes on a factual inaccuracy.
1. Account Balance. Has the account been transferred or sold to a collection agency? If so, the account balance should be at zero. Many times the account balance will report on the charge-off account as well as the collection agency account. This can hurt your credit-utilization, making it look like you owe both the creditor that sold the account and the collection agency.
An original creditor who has sold or transferred the account to a collection agency cannot continue to report a balance owed. If they report monthly it must report as a zero balance. If there is an amount owed once the account has been sold to a collection agency, then this is a factual error that can be disputed because it is inaccurate or incorrect credit reporting.
Dispute the balance and ask for a deletion. Sample Letter: I am writing to dispute [name of account and account number] on credit report number [xxxxxx]. The balance listed on the account is incorrect. Please delete the account.
The letter does not have to be long. Make no mention of the fact the account has been transferred or sold to a collection agency and that the balance should be zero. In other words, do not help the credit reporting agencies “correct” information.
Always ask for a deletion of the entire account because corrected negative information does not help improve your credit score. But keep in mind the credit bureaus are not required to delete incorrect information; they can simply correct the information to reflect accurate reporting.
2. Open Date of Account. Is the opening date of the account correct? If not, dispute the date. It may be a minor issue; nevertheless, it is a factual error you can base a dispute upon. A simple letter stating the opening date is incorrect. Request a deletion of the entire listing. Do not give them the correct opening date as it is their responsibility to investigate, not yours.
3. Highest Balance. This category on a credit report can often be incorrect. Dispute the “highest balance” you never know, you may get the entire listing deleted if the original creditor cannot provide the correct high balance especially if the account is older and they no longer have the records.
4. Late Payments. Are there late payments after the account has been charged-off? If so, how can that be? There should be no delinquencies after the “closed” date. Additionally, does the credit report show an amount charged off along with a past due amount? If so, this is incorrect reporting if the charge-off account has been sold or transferred to a debt collector.
Request a deletion. It may only be corrected to reflect a past due amount of $0 but at least try to get a deletion because accurate negative information is still negative on your credit reports.
5. Dispute account status. Charge-off accounts that have been sold should not be listed as currently open by the original creditor. Request a deletion of the account even though it may only be corrected, as stated above, it does not hurt to request deletions.
6. Dispute Re-Aged Accounts. Creditors and collection agencies that re-age accounts are seriously affecting your credit score. It is imperative that you dispute re-aging of accounts. Re-aging causes a negative account to appear more recent. The more recent the charge-off appears to be, the more detrimental to your credit scores. Re-aging also causes an item to stay on your credit report longer which is not only illegal but also a credit score killer!
7. Exceptions. There is an exception to disputing charge-offs. Let’s say the charge-off account has been paid and two years have passed. It may be wise to just leave it be. Removing it may lower your credit score because of the date of last activity. You want to avoid the date of last activity on the account appearing as current.
Remember some older negative entries matter less when calculating credit scores. Once a charge-off gets 48 months or older, it has much less impact on your credit scores. Unless you are purchasing a home and the mortgage lender requires you to pay the debt; or, in the cross-hairs of being sued for unpaid debt, leaving it alone may be the best strategy.
Disputes should be done in writing using U.S. Certified Mail. Learn how to write a dispute letter to get results.
Exercise caution when disputing older charge-off accounts
When disputing a charge-off you run the risk of lowering your credit score if the dispute returns verified as accurate. This can hurt your credit score because the credit bureaus will update the last date of activity on the account.
Once the date of last activity is updated the negative account appears recent. Often times older charge-offs are not updated monthly by the original creditor which is good for your credit score.
Recent activity, whether that activity is a payment, a missed payment or monthly reporting by an original creditor, all counts as recent activity. Updating a negative charged-off account does nothing but causes the negative account to look more recent.
Recent negative information on your credit reports is more detrimental then older negative information. Just consider all possibilities when disputing a charge-off — it may be better to let it age off.
Settle the charge-off
At some point the creditor may be willing to settle the charge-off and even accept less than what is owed, much like settling with debt collectors for pennies on the dollar. Settlement can be a good option if you just want to move on. It gives you a chance to stop the calls, letters and most importantly stop the threat of legal action.
You can better concentrate on rebuilding your good credit. The only issue with settlement is that the account remains on your credit report. You should ask the creditor if they can delete the account once it is settled.
Payment in exchange for deletion is common with collection accounts but may be more difficult to negotiate with creditors. But it’s worth a try. The reason it’s more difficult is that the credit bureaus encourage creditors to preserve accurate consumer credit histories for use by others and not to delete accurate negative information.
But you can always request any creditor to voluntarily delete a negative account. That’s because the creditor is not required to provide a reason to the credit bureaus as to why they deleted information they previously reported…the creditor can just request a deletion PERIOD.
If the creditor will not agree to a deletion then request the account be simply noted as “Paid.” Some creditors will mark the account “Paid/Settled” and this can add to your troubles. When you settle an account it indicates that the creditor agreed to accept less than the amount owed on the account. A settled account indicates a higher level of risk because it means the account went past due.
Charge-offs are not forever
The good news about charge-offs is that they do not last forever. After 7.5 years from the date the account first became 30 days late on the original account it will be removed from your credit reports. In some instances it may be best to leave a charge-off alone because the longer the account has been charged off and has had no activity, the less it impacts your score.
Anything that is less than 12 months has the most impact on your credit score and the impact reduces after that, unless you keep adding new collections and charge offs to your credit reports.
As you can see there are several options in disputing a charge-off. Consider allowing a professional repair your credit. Lexington Law assisted clients in removing over 4 million negative items from their credit reports in 2022. Those negative credit items included: Bankruptcies, Foreclosures, Tax Liens, Repossessions, Judgments, Collections, Late Revolving Credit Payments, and Inquiries.