Needless to say, if you have seen a charge off on your credit report, you have to be alarmed. For people who are trying to build a good credit rating, charge offs are bad news. A charged off account can even affect your credit report for as long as seven years. Hence, you must remove it in your records immediately.
In this article, learn about charge offs and how to remove them from your record. Learn about the different tips and techniques on how you can avert this disaster. You must also understand what a charge off is to no longer encounter this problem in the future.
What is a charge off?
When you have a loan that you fail to pay for six months or longer, lenders will mark your account as ‘charge off.’ This also means that lenders have tried and failed several times to get you to pay, and they have given up hope that you will be able to pay your debt.
It is a severe and derogatory entry in your credit report that can taint your record permanently. It sends a red flag to other creditors that you are not trustworthy and should not be lent in the future.
How does a charge off affect your credit score?
If you are charged off, your credit score will surely suffer. One single charge off can drop your credit record 100 points or even more. This would also mean that you will find it extremely difficult to get a credit card, auto loan, or personal loan applications approved.
Again, likely, creditors will no longer approve of any new type of loan even with just one charge off.
Charge Offs: Paid vs. Unpaid
If a charged-off account is paid, the credit report will show it as ‘paid.’ Meanwhile, if you fail to pay the charge-off in full or not pay it at all, the information will show it as ‘unpaid.’ Note that paid charge offs are better than an unpaid one. Though it will not be removed in your report, a paid charge off will affect your creditworthiness less and less over time.
A paid charge off is not the same as having no charge off in your credit report. Once a creditor sees that an account holder has this kind of record, they will likely not grant the borrower a new credit card or new loans.
4 ways of how to remove a charge off from your credit report
As mentioned above, even when you pay the charge off, it can still reflect in your credit report. So, here are four ways you can do to ensure that this bad record does not tarnish your credit records.
Note that one method might be better than the other. Be sure to study your situation so you can pick the best option that works best for you.
1. Offer to pay the creditor to delete the charge off
Probably the most effective way to remove a charge off in your credit record is to offer payment to the creditor. Even before payment, try to negotiate and tell them that they have to remove it from your history after your payment. One caveat of this is that once you have paid and the credit report indicates charge off paid, you really cannot do anything. The creditors can no longer remove this from your credit report.
2. Use the advanced method to dispute the charge off
Another way you can try is the so-called advanced method. Here, you have to show that the current credit report you received has some erroneous information. Lenders are then forced to change the credit report, which means they will have to remove the charge off from your credit report.
According to the Federal Trade Commission, around 5% of borrowers have erroneous information in their credit profiles. All you have to do is check whether you belong to the group of borrowers who have problems in their credit report. When checking, some of the information you want to look for is your account number, lender’s name, open date, history of payment, address, and balance, among many other things.
If you have noticed any error in any of these details, write a letter to 3 credit bureaus. Tell them which information is erroneous. The credit bureaus will then check the claims you made about your account, and necessary actions will be made proof of the accuracy of the debt.
3. Reporting a charge off
You can also choose to submit a dispute to a credit reporting agency. The agency will then have 30 days to investigate your dispute. They will contact the creditor and ask for proof of the validity of the charged-off account. If the creditor fails to respond or if they fail to prove the validity of the debt, the agency will then remove the charge off from your credit report.
4. Hire a professional to remove the charge-off
If you find the process of removing the charge off from your credit report daunting and exhausting, you also have the option to contact professionals whose job is to help people like you. You will have to spend extra to avail of their service, but these businesses have experienced these problems. They are equipped with the knowledge on how to solve your problem.
Will my credit score improve if I pay the charge off in full?
While you must settle your debt, paying in full does not necessarily improve your score. As discussed above, even when you pay your charge off, it will still reflect your credit report. It could still negatively impact your credit rating.
This means that what you have to aim for is for your charge off to be removed from your report. This is the best way for you to make sure that your credit rating will not be affected.
Can a paid charge off account be removed from the report?
Even after payment to a charged off account, the credit report will still reflect it. Remember that a credit report records your credit history, which means that lenders and creditors will have to see this in your account. Unless you make a conscious effort to ask it to be removed, chances are, charge off will be seen there for a long time. It will be a sore to the eyes of lenders and creditors.
This is why you have to work hard to ask your creditor to get your charge off to be removed from your credit report. This bad record will haunt you for a long time. It will impede your other transactions with moneylenders and other financial institutions. A creditor will find it difficult to trust you again.
How long do charge offs stay on your credit report?
A charge off in your credit report can last for as long as seven years. This will probably mean that it will be difficult for you to get a new credit card, car loan, house loan, or other types of loans for the next seven years. A creditor will not be likely to trust you knowing your financial problem.
Take this scenario, for example. If you had not paid a credit card for six months and the creditor marked it as a charge off on January 1, 2020, it will stay in your credit report until January 1, 2027. It will take you that long to recover from a single mistake. This must give you an idea of how this kind of loan record will relieve headaches for a very long time.
How to improve your credit score?
If a charge off cannot be removed from your record, the best way to improve your score is to pay your loans full and on time. Never miss any payment date to gain the trust of creditors and lenders again.
As you may know, your lousy record could last for seven years, but after this, the good points in your rating will be the only ones left. This means that you should no longer add to your bad record. Just let the bad one get erased by time.
You mustn’t incur a charge off in your file. Having one will bring significant problems to your finances. Also, as you have read above, it takes so much effort to remove your charge off. You should avoid having this problem altogether.
There are a lot of things to know about managing your loans, credits, and finances. Get as much information as you need to make sure that you will be doing the best solution to your money problems. To date, there is a lot of available information online. Make sure to get up-to-date references that will guide you in your financial journeys.