How to Remove Charge-Offs from Your Credit Report

When you fall behind on a bill, it usually isn’t long before you start receiving calls and letters from your creditor. When you miss enough payments, the creditor may eventually give up on trying to collect the debt. At that point, the creditor often closes your account and marks it as a charge-off.

What Is a Charge-Off on Your Credit Report?

A charge-off is a severely past-due account (also known as delinquent). Every company has different policies, but it’s common for a creditor to charge off an unpaid debt once you’ve missed six payments in a row. At that point, your account is at least 180 days past due.

For creditors that share information with the three major credit reporting agencies—Experian, Equifax, and TransUnion—the account will be noted as “charged off” on your credit reports. If the creditor sells or assigns the charged-off debt to a collection agency, a collection account may show up on your credit reports as well. (The original charged-off account is supposed to be updated to a $0 balance if this happens.)

A charge-off on your credit reports can be bad news. The notation can potentially hurt your credit scores and may make it tough to qualify for new credit in the future (especially at an attractive interest rate).

Does a Charge-Off Mean the Amount Is No Longer Due?

The term charge-off can be confusing. On the surface, it almost sounds like something positive—like your lender has decided to let you off the hook for an unpaid debt. In reality, it’s not that easy.

When a company charges off unpaid debt, it often writes it off for tax purposes. A charge-off on a company’s books says the creditor doesn’t believe it will be able to collect the money it’s owed.

As a consumer, a charge-off doesn’t help you. You still owe your unpaid balance to the creditor, plus interest and fees. Your balance may grow if late fees and penalty interest rates kick in on the account.

A charge-off will generally remain on your credit reports. As long as it hasn’t been sold or assigned to a collection agency, it may still show both your remaining balance and your past-due balance.

How Long Do Charge-Offs Stay on Credit Report?

Like most negative items on a credit report, a charge-off can’t haunt you forever. The Fair Credit Reporting Act (FCRA) sets strict limits on how long most derogatory items can stay on your credit reports.

In the case of charge-offs, the credit reporting time limit is seven years. Specifically, a charge-off can remain on your credit report for up to seven years from the date of the first late payment that led to default.

The following example shows how the credit reporting timeline of a charge-off works.

1/1/15: You become 30-days late on a payment to Imaginary Bank and Trust (IBT).
7/1/15: At 180-days past-due, IBT closes your account and marks it as a charge-off.
1/1/22: The charged-off account must be deleted from your credit report by this date.

The credit bureaus and creditors can make mistakes. Whether on purpose or intentional, a mistake could result in a charge-off remaining on your credit report for too long.

Do you think a charge-off has been on your credit report longer than seven years? You or your credit repair professional may need to dispute the outdated account to try to fix the problem.

How Many Points Does a Charge-Off Affect Your Credit Score?

A new charge-off notation might lower your credit score. But it’s difficult to pinpoint the exact number of points your score might change.

Credit scoring is complicated. While a charge-off might cause your score to drop 30 points (hypothetically speaking), a charge-off could have a very different impact on someone else.

Nothing in credit scoring is worth a set number of points. A collection account, for example, won’t drop your credit score 40 points. A credit inquiry won’t cost you 10 points. Credit scoring models, like the ones FICO and VantageScore create, evaluate your credit report as a whole to determine your credit risk. Individual credit report entries aren’t considered in a vacuum by themselves.

It’s also worth noting that a charge-off is typically added to your credit reports after a string of late payments. By the time your account is six months past due, you may already have six rolling late payments on your credit reports. Payment history is worth about 35% of your FICO Score. So, those late payments are already hurting your numbers. Adding a charge-off into the mix might not cause much additional damage if your scores are already in rough shape.

Will Paying Charge-Offs Increase Credit Score?

Paying a charge-off might help you avoid problems like debt collection lawsuits and harassing phone calls. Just don’t expect a paid charge-off to boost your scores automatically. In many cases, paying a charge-off does little to nothing to help your credit scores.

Lenders use credit scoring models to evaluate the risk of loaning you money. A FICO Score’s purpose is to help lenders predict the likelihood that you’ll fall 90 days or more behind on any credit obligation during the next 24 months.

Based on that information, you can understand why paying a charge-off might not benefit your credit scores. Even with a zero balance, your credit reports still show a history of you paying bills late. Future lenders may be worried that if they loan you money, you’ll pay them late too.

Yet there is some good news. Credit scores give more weight to recent events on your credit reports. If a charge-off was just added to your reports last month, the account may have a significant impact on your credit scores. But as negative history grows older (and no new negative activity shows up elsewhere on your reports), its impact starts to fade. A charge-off from three years ago hurts your scores far less than a charge-off from last month.

How to Remove Charge-Offs from Your Credit Report—Negotiate and Pay

Creditors don’t have to delete charge-offs from your credit report just because you pay them. The credit reporting rules for paid and unpaid charge-offs are the same. Both can remain on your credit report for up to seven years.

You may, however, be able to work out a deal with a creditor for early deletion in exchange for payment. This type of arrangement is called a pay-for-delete settlement. Of course, there’s a catch. It can be hard to convince a creditor to delete a charged-off account, even if you offer to pay the balance in full.

Pay-for-delete arrangements aren’t illegal. But creditors and collection agencies do sign agreements with the credit bureaus promising not to ask for the deletion of negative accounts simply because a customer pays off his debt. Still, it doesn’t hurt to ask.

Sometimes the strategy works. If you convince a creditor to agree to a pay-for-delete settlement, be sure to get the offer in writing before you hand over any funds. You might need the written proof (along with legal help from a Fair Debt Collection Practices Act attorney) if the creditor doesn’t keep up its end of the bargain after you pay.

How to Dispute a Charge-Off on Your Credit Report

As mentioned, unpaid and paid charge-offs can remain on your reports for up to seven years under the FCRA. But that rule only holds true if both the creditor and the credit bureaus do everything they’re supposed to do. You have the right to dispute any information on your credit reports that’s incorrect or looks suspicious.

Even credit reporting errors that seem minor might be a big deal. For example, if a creditor reports the wrong late payment dates on a charged-off account, your scores could be impacted. Incorrect reporting could also lead to a charge-off staying on your credit report longer than it should under the law.

Can Credit Repair Companies Remove Charge-Offs?

Only the credit bureaus have the power to remove something from your credit report. Not even your creditors have direct access to your credit file. (If a credit repair company advertises “guaranteed removal” of any item on your credit report, it should be a red flag.)

But reputable credit repair companies can help you exercise your consumer rights. They can also help you prepare and submit disputes.

If you direct a credit repair company to dispute an item on your credit report and your creditor can’t verify that it’s 100% accurate, it must be erased from your report. A charge-off isn’t allowed to remain on your report if it’s incorrect, outdated, or unverifiable.

The FCRA gives you the right to ask the credit bureaus to verify any item on your credit report. You also have the right to manage this dispute process on your own. But if you’re busy or overwhelmed by the process, you can hire a professional to deal with the credit bureaus and your creditors on your behalf. You don’t have to face credit problems alone.