Banks, lenders, and creditors will charge off an account generally after about six months of delinquency or non payment. This is how a creditor is able to write off the account for tax purposes. However you’re personally still very much responsible and legally liable for this debt.
Often charged off accounts are first sent to an in house collection agency, and depending on the outcome can legally be resold to again to third party debt collectors. Most commonly charge offs are used with credit card accounts, but can also happen with many types of consumer debt.
Charge Off On Credit Report
When a lender charges off your account, as we’ve shared the debt will be sent to a collection agency, in house or third party. In addition, you’re also going to get slapped with a charge off listing on your credit reports.
This is going to hurt your credit score. By law, a charge off can remain on your credit file for a maximum of seven long, expensive, and embarrassing years.
This will not only cause you to have a poor credit rating, it will indicate to future lenders that you’re a risky applicant. And it gets worse, because this collection agency that now owns the legal rights to collect on your debt, is now contacting and pestering you for payment.
This new collection agency will also report negative information on your credit report, it’ll appear as a collection. According to Anthony Sprauve, a spokesman for FICO, a collection on your credit report can drag your credit score down by up to 100 points.
This is in on top of the existing negative listing of a charge off. If the collection agency is not able to collect payment, then they have the legal authority to once again sell your account to yet another collection agency.
This newest debt collector, will pursue the same path, and report additional negative information on your credit report. The most common result of unpaid collections is a civil lawsuit.
In other words, if this initial charge off account is never paid, you can anticipate your account eventually falling into the hands of a debt collector that specializes in legal action. And they’ll sue you for the debt.
Their goal is to get a judgement against you. This gives them a wide range of legal methods to collect payment and depending on your state of residence can include: wage garnishment, liens levied against you or your property, and even asset seizure.
How To Remove Charge Offs From Credit Report
Look, there’s a few ways to remove charge offs from your credit report. But, please don’t anticipate just waiting seven years as one of the viable options.
We can explain in detail, however the short story is if you expect your consumer rights to be respected by lenders or collection agencies, you’re not living in reality. Federal law, states the maximum amount of time a charge off can remain on your credit report is seven years.
Did you know there is no minimum amount of time any negative item must remain on your credit report? It’s true, and wise consumers are determined not to suffer with a low credit score for seven long, expensive, and embarrassing years.
1. Negotiate a pay for delete
Typically this is most effective with recent charged off accounts, and specifically those accounts that are currently being collected by an in house debt collector. For instance with major credit cards, they often send charge off accounts to their in house collection agency.
This is important because there is still a line of communication. Once this line is cut, it’s virtually impossible to negotiate a pay for delete with the original creditor and for the charge off item.
The idea here is to offer a settlement payment, in exchange for the lender deleting the charge off from your credit report. Hence, the name “pay for delete.”
You should expect to pay a premium on the debt, and there’s no guarantee. In full disclosure the pay for delete method isn’t common. However if you’re able to successfully clear your credit of this charge off, it’s easy to justify the expense because you’ll be saving thousands of dollars on future interest rates with an improved credit score.
2. Dispute your credit report
If your goal is simply to remove a charge off from your credit report, then you’ll need to exercise your consumer rights and specifically those granted by the Fair Credit Reporting Act (FCRA). This federal legislation gives you the right to dispute and challenge any item on your credit report.
As you’ve surely guessed, we’re going to dispute the charge off on your credit report. This needs to be done directly with the three major credit bureaus.
There’s three ways to file your credit dispute: online, over the phone, and by mail. Once the bureaus get your credit dispute and find it valid, then they’re required to conduct an investigation.
During which they’ll contact the company reporting the charge off about you, and request verification of the account. If your account is not verified then in accordance with the FCRA, the credit bureaus must remove the charge off from your credit reports.
On a sidebar, if your charged off debt has been sold to a third party collection agency it’s very likely the original lender will not verify the item. This is because there’s nothing to gain for them in doing so, and instead they’re wasting resources.
To clarify because the credit card company for example, has already sold your account to a third party collection agency, the credit card company has earned all the revenue they can. They’ve charged off the account, so will have a tax write off or deductible.
For them to verify a consumer’s account, it’s only going to cost them money even simply with man hours to comply with the credit bureaus investigation. This is why, the credit bureaus remove millions of charge off listings from consumers credit reports, every single year, and legally.
It’s important that you also address any lingering collection items on your credit report, related to this account or otherwise. Finally, you can pay off a charge off, but it will only improve your credit rating a few points.
Look, life is messy. And contrary to what many folks believe, good people get screwed with bad credit everyday. We could spend days, sharing horror stories of divorcee, temporary job loss, illness, and so many more reasonable circumstances where individuals are left in tatters.
This is precisely why all these alphabet soup laws were passed by our government to protect you and me from predatory lenders, creditors, banks, collection agencies, and even the credit bureaus. Every year, the debt collection industry is fined by our government for violating consumer rights.
Did you know the credit bureaus have been fined by our government too? It’s true, and repeatedly, and over decades. This is why our government has felt it so necessary to pass laws requiring the bureaus to behave appropriately toward consumers.
Please, don’t be one more victim of this rigged system. You don’t just have to live with bad credit for seven long years. We encourage our members to consider professional, legal, and affordable credit help.
One of the best firms is The Credit Pros. They’ve helped clients remove all sorts of credit report blemishes including: charge offs, late payments, collections, judgements, liens, and many more.
Take action today and get a free credit consultation with certified FICO professional by calling toll-free 1-877-418-7596. For more tips on how to fix credit with Dan Willis sign up for our free newsletter.
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