Charge-offs on your credit report can sink your credit score and affect your ability to get a loan, credit card, or mortgage. It can also make it more difficult to get a job or rent an apartment.
Most of the time, legitimate charge-offs on a credit report must be paid, but there are instances in which you may be able to get them removed without paying.
In this article, I’ll explain exactly what a charge-off is and give you some options for removing them from your credit report.
Table of Contents
- What Is a Charge-Off?
- How Does a Charge-Off Affect Your Credit?
- How to Remove a Charge-Off Without Paying
- How to Initiate a Dispute with Experian
- How to Initiate a Dispute with Equifax
- How to Initiate a Dispute with TransUnion
- Wait For the Collection to Fall Off of Your Report
- Other Options for Removing Charge-Offs
- Final Thoughts
What Is a Charge-Off?
If you have a bill that you haven’t paid in a long time (typically six months or more), the company that is owed the cash will often assume you aren’t going to pay the bill.
A charge-off is a creditor’s declaration that they’re no longer going to try and collect that money from the debtor. When a company declares a bill a charge-off, this gives the company the ability to claim it as a loss on its tax return.
Once you have a charge-off on your credit report, collection companies will often start calling. This is because collection agencies buy charged-off loan balances from the companies that were originally owed the money.
The collection agency buys the charge-offs at a fraction of the value owed and then tries to collect the entire balance from the debtor.
The goal for the collection company is to try and make a profit on the purchase, and the goal of the original creditor is to try and recover at least some of the money they lost on the unpaid debt.
Not all creditors sell charge-offs. In some cases, companies will hire a collection agency to act on behalf of the company while the company still retains the charge-off balance.
In this case, the collection agency gets paid for collecting the debt but doesn’t own the debt.
No matter the type of collection agency, after you have a loan or other bill that’s been charged off, you’ll no longer work to remedy the situation with the original creditor. Instead, you’ll work with the collection agency that owns the debt or has been hired by the originating creditor.
How Does a Charge-Off Affect Your Credit?
Charge-offs can have a major impact on your credit score and on your ability to get credit, even smaller charge-off amounts of $100 or less.
Here’s an example. When I was in my early twenties I applied for my first auto loan. The year was 1988, and the car was a beautiful 1981 Ford Mustang in mint condition. I fell in love the minute I saw it.
But I was denied the loan because of a $68 charge-off I had no idea even existed. It was an uncovered balance for a medical bill I’d incurred. The doctor’s billing agency had been sending the bill to the wrong address.
Since I never received a bill, I didn’t know I had a balance to pay until I applied for the car loan and the dealership made me aware of the charge-off. Luckily, the dealership agreed to give me the loan if I paid the charge-off, which I did.
I got my car but almost lost out on it because of the profound impact charge-offs can have on one’s credit record.
My story is a good reminder of the importance of checking your credit record, which you can do with any popular credit score app. Note that while some credit score apps charge a monthly fee, there are ways to check your credit score for free as well.
Always check your credit report to ensure no charge-offs have slipped through the cracks. If you don’t, and you have one or more charge-offs, you will likely be denied credit.
There are a couple of instances where you can get a charge-off removed without paying the balance owed.
The first is to prove that the charge-off is an error. Maybe the bill was indeed paid. If that’s the case, you need to show proof that you paid the balance, whether via your bank statement, canceled check, or your receipt from your payment to the initial creditor.
Conversely, maybe the collection agency has no way to prove that the bill was yours in the first place. If there are no supporting documents to prove that the bill belonged to you, you may be able to get the charge-off removed without paying.
In either situation, you’ll need to initiate a dispute with each of the three major credit bureaus if you want to have the charge-off removed.
Here are instructions on initiating disputes with the three major credit bureaus.
How to Initiate a Dispute with Experian
Experian allows you to file a dispute to get an item removed or corrected in two ways:
- File a dispute online: https://www.experian.com/disputes/main.html
- File a dispute by mail: Experian, P.O. Box 9701 Allen, TX 75013
You’ll need to include your full name, date of birth, Social Security number, current address, previous addresses (for the last two years), email address, copy of a government-issued ID, and other information.
How to Initiate a Dispute with Equifax
Equifax also allows you to file a dispute both online and by mail.
- File a dispute with Equifax online: https://www.equifax.com/personal/credit-report-services/credit-dispute/
- File a dispute with Equifax by mail: Equifax Information Services, P.O. Box 740256, Atlanta, GA 30374-0256
As with Experian, you’ll need to include your reason for writing, providing as much information as possible about the charge-off and why you’re disputing it.
You’ll also need to include your personal information, such as name, Social Security number, birth date, email address, a copy of your ID, and current and prior home addresses.
How to Initiate a Dispute with TransUnion
TransUnion offers three ways for you to dispute an item on your credit report: online, by phone or via mail.
- File a dispute with TransUnion online: https://www.transunion.com/credit-disputes/dispute-your-credit
- File a dispute with TransUnion by phone: 1-800-916-8800
- File a dispute with TransUnion by mail: TransUnion Consumer Solutions, P.O. Box 2000 Chester, PA 19016-2000
As with Equifax and Experian, be prepared to provide a wealth of personal information and information about the charge-off when asking to have the charge-off removed.
Wait For the Collection to Fall Off of Your Report
Another way to remove a charge-off is to wait for it to be removed from your credit report. Charge-offs will stay on your credit report for up to seven years. By that time, a charge-off, even if it’s legit, should “fall off” of your credit report.
Just because a charge-off falls off of your credit report doesn’t mean that you aren’t responsible for the debt. It just means that the debt has exceeded the statute of limitations. As a result, collection agencies can no longer report it to major credit bureaus.
As a consumer, you can decide at that point whether or not to pay the debt. Yes, it’s still legally your debt, but not paying it will no longer affect your credit score.
Waiting for a charge-off to fall off your credit may not be the best move.
If it’s a two-year-old charge-off item, waiting another five years is a long time to deal with the negative impact.
Even if you’re okay with not paying the charge-off because you have no plans to use credit, remember that credit reports are also used in job hiring, for determining auto insurance rates, and more.
Other Options for Removing Charge-Offs
If you’re in a situation where the charge-off is valid and can’t be removed without paying, you do have some options that will help you get the charge-off status modified so that it has less impact on your credit report.
Pay the Charge-Off Amount
The easiest and simplest way to get a valid charge-off removed is to pay the bill. Whether you pay in full or request a payment plan, try to put the charge-off behind you. This will minimize the impact on your credit and take a weight off your shoulders.
Before you pay the charge-off, make sure you’re working with the correct agency, which is authorized to collect the debt. Then, pay the debt and insist on written confirmation via a letter or email.
Negotiate a Lower Payoff Amount
Another option is to negotiate a lower payoff amount. Note that this may take some doing. Remember that the collection agency has purchased the total amount of the charge-off at a reduced price.
Since you’ll never know just how much the charge-off was purchased for, the negotiating process for getting a lower payoff amount can be a bit of a dance.
Remember that collection agencies handle charge-off debt in two different ways. They may purchase the debt, sometimes for pennies on the dollar.
Or they may act on behalf of the company while the company still owns the debt. Either way, you’ll work with them to move the charge-off to a paid status.
Because the collection agency wants to make a profit, you can expect their representatives to be tough negotiators. They’ll read a script designed to appeal to your conscience, so expect some pushback if requesting a lower payoff amount.
In the end, the final amount you pay will depend on the minimum amount the collection agency can collect, the shrewdness of the collection agent, and your ability to negotiate.
Take the deal that best suits all of those factors. At the end of the day, removing the charge-off is what really counts.
Negotiate a Pay for Delete Deal
A final option that may work for you is called a Pay for Delete deal. This is where you agree to pay the collection in full. In return, the creditor or collection agency removes the collection report from your credit report altogether.
You see, all charge-offs remain on your credit history for seven years, even after you paid them off. The only difference is that they show up as paid in full, with a zero balance.
However, the collection agency can delete their reporting history from your credit report.
If you’ve never had a charge-off on your credit report, aim to keep it that way. Make sure you pay all of your bills on time. Also, sign up with a credit reporting service to monitor your credit and identify any potential errors when they occur.
If you have one or more charge-offs, pay them off in full as quickly as possible. Just make sure that the charge-off is legit first. If paying the charge-off isn’t possible, take time to explore the options I’ve covered in this article.
Your ultimate goal should be to keep your credit in pristine condition.
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About Laurie Blank
Laurie Blank is a blogger, freelance writer, and mother of four. She’s psyched about teaching others how to manage their money in a way that aligns with their values and has been quoted in Bankrate.
She’s a licensed Realtor with Edina Realty in Minneapolis, Minnesota (also licensed in Wisconsin too) and has been freelance writing for over six years.
She shares powerful insights on her blog, Great Passive Income Ideas, that will show you how you can create passive income sources of your own.
Opinions expressed here are the author’s alone, not those of any bank or financial institution. This content has not been reviewed, approved or otherwise endorsed by any of these entities.