A charge off on your credit report leads to a HUGE drop in your credit score. Some experts say that if you remove a recent charge off from your credit report, you can see an INCREASE in your credit score of up to 150 points!
If you don’t know what a charge-off is, it’s what happens when a lender has exhausted all means of collecting the debt from you. Your debt is written off as a loss in the creditors’ accounting book. The creditor will close the account (if they haven’t already done so) and while they report it as a charged-off account to the credit reporting agencies. They may also sell the account to a collection agency, who will then put this account on your credit report as a collection. THUS causing your credit score to drop even more.
Though, the status “Charged off” sounds like you’re getting rid of the debt you owe. As long as the charge-off isn’t paid, the creditor can continue and try to collect on the account as well as having the right to sue you, until the statute of limitations runs out. By the time your debt is charged off, your credit score has already taken considerable damage. The account would have been reported as 30 days, then 60 days, 90 days, and more than 120 days late. And even If you somehow manage to pay off the charge-off, your bad credit score won’t improve if you don’t take a few steps first.
How To Get Charged-off Accounts off Your Credit report?
Recovering your credit score after a charge-off can be complicated but is possible. Here are the top ways to get charged-off accounts off your credit report.
The simplest and most straightforward method of having a charged off account removed from your credit report is by talking to the creditor and agreeing to remove the charge off if you can pay the debt . Most of the time they will act like it needs to be paid in full. But if the debt is old you can start negotiations at less than 50%. If it’s VERY old (almost ready to fall of the credit report, but you need to get it paid to get your home loan – start off as low as 30% and don’t tell them you are looking for a mortgage! If they find out you are looking for a mortgage, they will know you MUST pay off the debt to get qualified and they will not settle for anything less than the full amount! in full.
Once you reach an agreement, get it in writing! Never send money to a creditor or a collection agency without having the agreement in hand. Not in the mail. But in your hand!
Paid For Deletion
When you negotiate, you want to make it clear that you want them to remove the trade line from your credit report. And you want a Paid for deletion letter. If they don’t have one, you can send them one (we have one on our site)
If you can’t pay the full amount immediately, talk to the creditor and let them know that you are willing to set up a payment schedule. And you can have the agreed-to amount fully paid by “X” date by making “X” monthly payments in the amount of “X”. As long as at the end of the payment period they remove their tradeline from your credit report. Get the “Paid for deletion” sample letter here.
Other statuses
Sometimes no matter what, the creditor won’t remove themselves. You will want them to list themselves at either Paid or Closed. It’s still a negative mark on your credit report, but it won’t stop you from getting a home loan.
Validate the Charge-Offs
Another way of dealing with charged-off accounts is through the dispute process. You can start trying to find errors in the way it appears on your credit report. Is it being reported correctly? Is the amount, date, number of late days correct? Make sure when you dispute these items that you don’t mistakenly give them the information you don’t want them to know. For example, you say I didn’t owe them $4,000, I only owed them $3800! The lender will just adjust the amount (if they have nothing to prove their $4,000 claim) and use your statement as verification!
That is why, even when we write Paid for deletion letters. We use the wording “we are not verifying that this debt is ours or that we owe this amount”….. We do that so that they can’t use the letter as a means of verification.
Just keep in mind that even if the debt gets removed. It may come back. If the debt is truly yours and the creditor provides the proof it can be put back on, even if it’s been removed before. The credit reporting agencies will send you a letter 5 days before the put it back on your credit report, to let you know that the debt has been re-verified
Hire A Professional
Having a charge-off removed from your credit report is a lot of work and effort. If you want the charge off removed without much of a hassle, it’s highly recommended you contact a professional credit repair agency that can have the charge off removed on your behalf. A professional credit repair agency knows how to get the job done and in most cases, they can get a charge off removed much faster and for less money. Just make sure they have a debt settlement process.
If your debt is still with the original lender, you can ask to pay the debt in full in exchange for the charge-off notation to be removed from your credit report. If your debt has been sold to a third party, you can still try a pay for delete agreement.
If your debt is still with the original lender, you can ask to pay the debt in full in exchange for the charge-off notation to be removed from your credit report. If your debt has been sold to a third party, you can still try a pay for delete agreement.
Borrowers hoping to achieve a settlement contact the lender, verify the amount owed, and attempt to negotiate an acceptable middle ground. Customarily, settlements are paid in a single lump-sum payment; however, borrowers may be able to score a reduced-payment plan.
The letter you send your creditor to remove your charge-off is called a “pay for delete” letter or a goodwill letter. Generally, you send a pay for delete letter if you haven't paid the debt and a goodwill letter if you've already paid.
How long will the charge-off stay on credit reports? Similar to late payments and other information on your credit reports that's considered negative, a charged-off account will remain on credit reports up to seven years from the date of the first missed or late payment on the charged-off account.
Creditors are usually more willing to remove a charge-off when you can pay more rather than less of the debt. This is known as “pay for deletion.” Again, you should ensure you speak with someone with your creditor's company who can delete the entry. Before you pay anything, you should receive the agreement in writing.
It's best to pay a charge-off in full rather than settle an account. Remember, settling an account is considered negative because you're paying less than you owe.
Does Removing a Charge-Off Improve Credit Scores? Settling the debt and getting the charge-off removed won't necessarily result in your credit score automatically becoming great overnight.
What you can do is contact your original creditor. You can ask them—very politely—what it would take in order to have the charge-off removed. At the very least, they'll likely ask you to pay back at least a portion of what you owe. In this situation, some creditors may offer a “Pay for Delete” agreement.
Most lenders want a borrower to have a DTI below 43%. With exceptions, your lender may require you to pay off any collections and charge-offs on your credit report. Even if your DTI is within a healthy range, the loan officer may indicate collection items are delaying loan approval.
A business uses a 623 credit dispute letter when all other attempts to remove dispute information have failed. It refers to Section 623 of the Fair Credit Reporting Act and contacts the data furnisher to prove that a debt belongs to the company.
A 609 letter is a credit repair method that requests credit bureaus to remove erroneous negative entries from your credit report. It's named after section 609 of the Fair Credit Reporting Act (FCRA), a federal law that protects consumers from unfair credit and collection practices.
611 credit dispute letter: This is how you'll ask the credit bureau to show how they verified information you are disputing. Section 611 is invoked when a credit bureau responds to your dispute and says it has verified the information.
How to remove a charge-off without paying. The only way to remove a charge-off from your credit report without paying is to wait until it expires from your credit reports. After seven years, a charge-off will disappear from your credit report automatically.
You can write a goodwill letter to the creditor asking them to remove the charge-off from your credit report. Explain your situation and why they should make an exception for you. You'll have more luck if you have a longstanding relationship with the original creditor or have other accounts with them.
Besides damaging your credit score, an unpaid charge-off can harm you when you want to make a major purchase using credit, rent an apartment or apply for a job. Businesses may be wary of someone with any long-term, unpaid credit accounts.
To remove a write-off in CIBIL, you need to pay back the total outstanding amount. After repayment, contact your lender to update this information with CIBIL. If such a status persists erroneously, raise a dispute with CIBIL to have it rectified.
Technically, pay for delete isn't expressly prohibited by the FCRA, but it shouldn't be viewed as a blanket get-out-of-bad-credit-jail-free card. "The only items you can force off of your credit report are those that are inaccurate and incomplete," says McClelland.
Introduction: My name is Allyn Kozey, I am a outstanding, colorful, adventurous, encouraging, zealous, tender, helpful person who loves writing and wants to share my knowledge and understanding with you.
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