Of course, a charge off on your credit report is a negative item. And it’s dragging down your credit score. These credit report dings, blemishes, and negative marks are the most common cause of a bad credit score.
Creditors and lenders will charge off a debt after 180 days or about six months of delinquency or non-payment. This essentially means the creditor has given up on collecting on the debt, and they’re going to write it off as a tax loss.
However, this doesn’t mean you’re not still responsible for the debt. Because depending on your creditor, the next step is your account is assigned or sold to a third-party debt collection agency.
This debt collector will then begin hounding you for payment, along with reporting more negative information on your credit reports. Charge offs can happen with many types of consumer debt.
One of the more common is with credit cards accounts, but it can happen with personal loans, auto loans, and many more types of debt. If you’re sick and tired of suffering from a less-than-perfect credit score and charge offs on credit report files, you’re in the right place.
How Long Do Charge Offs Stay On Your Credit Report?
The Fair Credit Reporting Act (FCRA) is federal legislation that says the maximum amount of time a charge off can stay on your credit report is for seven years. That’s from the date the account was charged off.
Keep in mind, your credit report was in all likelihood getting dinged with late payment items for six months prior to the charge off being assigned. In other words, the negative credit report consequences will last a maximum of seven and a half years in total.
Listen, seven years is the maximum amount of time. But did you know there is no minimum amount of time any item must remain on your credit reports? It’s true, our lenders and creditors aren’t required to report anything about our accounts.
Moreover, this isn’t like a prison sentence. It’s not as though we have parole hearings, or conjugal visits. And to just live with a charge off on credit report files for the maximum seven long, expensive, and embarrassing years is akin to doing the maximum sentence in real prison for a crime.
Should You Pay Off Charge Offs?
Currently, you probably have two negative items on your credit reports as a result of this charge off account. You have the initial charge off mark, and for illustrative purposes, let’s says it’s a credit card charge off. Then, you’re also going to have a credit card collection debt.
This is the actual debt. Because the collection agency in addition to calling you, sending letters, they’re also going to report negative information about your account on your credit reports. In other words, it’s a double whammy.
As to paying off charge offs, that depends directly upon your unique circumstances. In general, if you have a recent charged off account, say a credit card. Many of the bigger credit card companies, when they charge off accounts, they’ll send the account to an in-house collection agency, or partner debt collector.
If this is the case, then you may be successful negotiating with the debt collector to pay off the charge off account, if they’ll delete both the collection item and charge off item from your credit reports. It’s a tough road, and you’ll be going into a real battle.
The other instance when paying off charge off debt can be useful is if the collection agency is intending to use legal action. As in sue you in a civil court. Yup, this is quite common with unpaid debt in collections.
Eventually, a late-stage debt collector will get the rights to your account, and they’ll actually sue you for repayment. If they win their case, they’ll be awarded a judgement against you. This is their goal.
Because it can result in your wages being garnished, liens being placed against you and or your property, and even asset seizure. For precise details, check out your local legislation, because every state does have unique laws.
Big picture, we want to avoid a judgement. A credit card judgement is very common, but judgements can be pursued for any type of debt. And this will obliterate your creditworthiness, further, they have a much longer time window, potentially forever, to collect payment with this route.
We’re going to first share how to pay off debt in collections, and to do this, so it will improve your credit score. And then we’re going to share the nitty-gritty process of precisely how to remove charge offs from credit report files.
The reason we’re sharing the process of paying off collections first, is because this can potentially enable us to successfully remove the charge off from your credit reports. As in they’re related, but more on that in a bit.
How To Deal With Charge Off Debt
Now, when it comes to how to deal with debt collectors, the very first step is to request account validation. This is your consumer right granted by the Fair Debt Collection Practices Act (FDCPA). This federal legislation is supposed to regulate the debt collection industry.
You see, the debt collector is required to respond within 30 days of receipt of your validation request, by providing you with the paperwork, documents, and evidence that proves this is, in fact, your account. This paperwork will also show all the details about the debt including who the original creditor was, the dates of account activity, total balance, and more.
If they fail to validate your account, then in compliance with the FDCPA, the debt is legally forgiven. In other words, you’re no longer legally responsible for payment. And the collection agency is supposed to notify the credit bureaus to have them remove collections from credit report files, related to this account.
It’s most effective to send your debt validation request in writing, and using certified mail, with return receipt requested. This way you’ll have evidence they received your validation request. We strongly advise against making your request for validation verbally.
If your account is validated, we next need to review this paperwork in detail. We’re looking for your last date of account activity. Because state lawmakers have passed state legislation regulating exactly how long we are legally responsible for repayment of most consumer debts.
Typically, it’s about seven years from the last date of account activity. However, this is a state law, and does vary, so investigate your local listings for exact details. Once this statute of limitations legal time window expires, so does our legal responsibility for repayment.
This applies to charge off debt, credit cards, auto loans, utilities, medical bills in collections, telecommunications, retail, and so many more types of consumer debt. The few exceptions include federal income taxes, and federal defaulted student loans.
If your account is within the statute of limitations, and it’s validated, then we next want to look at how to pay off collections, and so it’ll help your credit. The big key is we need to clear credit report dings, in order to restore credit.
We’re first going to negotiate a settlement payment with the collection agency. And it’s wise to negotiate with debt collectors to settle for much less than the total balance. Frequently, your balance has been radically inflated with default interest rates, and even with collection fees.
Often, you’ll be able to settle for as little as 15% up to about 45% of the total balance. For example, with a $2,000 debt, you may be able to settle for just 20% or $400. They’ll be happy to accept a settlement payment for less.
But wait, before you go paying off debt collectors, there’s the second part of your settlement agreement and this is mission critical. We need to get them to agree that in exchange for your payment, they’ll stop reporting your account information to all three credit bureaus.
Otherwise, we’re going to get stuck with a paid collection item on our credit reports. This is still a negative, damaging, and derogatory item. And it’s going to lower your credit score.
How To Remove a Charge Off From Credit Report
We’re looking here at how to dispute a credit report item, both the charge off item, and the collection item. And we’ll once again, need to exercise your rights as a consumer, and those granted by the FCRA.
This federal legislation empowers us to dispute and challenge any item on our credit reports, so long as we believe that item is incorrect, misleading, or made in error. There’s three ways to dispute credit report items: online, over the phone, and by mail.
Once the credit bureaus get your dispute, and deem it valid, which is another conversation for another time and place. So make sure to sign up for our free newsletter for more credit fixing tips with Dan Willis, and join our congregation.
Once the credit bureaus get your dispute and find it valid, they’re required to investigate the item. They call it a re-investigation, nevertheless, they’ll contact the data furnisher, this is the company reporting the account information, and request they verify the account.
If the account can’t be verified, then it must be removed from your credit reports, in compliance with the FCRA. If it can be verified, then it will remain on your credit reports, and possibly updated with accurate information.
Here’s the scoop, when you dispute the charge off debt, and when the credit bureaus contact the original creditor, for example, let’s stay with a credit card charge off. When the credit bureaus contact this credit card company for verification, if the rights to the account have been sold or the debt has been paid, there’s very little to no incentive for the credit card company to verify the charge off account.
Hang with me here, the credit card company has written off your charge off account as a tax loss. Then they sold or recovered some payment on the account. Thus there’s nothing left for the credit card company to get from the account. The account no longer has any value.
One of the rarely discussed truths is it costs creditors, such as the credit card company, real money in simply man-hours to have someone actually verify an account when the credit bureaus investigate. If the account isn’t paid, or there’s some monetary gain left for the credit card company to verify your account, then it’s more likely the charge off will be verified.
Does this make sense? Your chances of successfully removing charge offs dramatically sky-rockets if the account has been sold by the original creditor or it’s been paid. And it boils down to dollars and cents.
This is why it’s so important to have the debt collector agree to stop reporting your account information in exchange for your payment. Because when you dispute the collection item and the credit bureaus investigate, when they contact the collection agency for verification, the account won’t be verified, as per your settlement agreement.
And as a result, the credit bureaus will have to remove the collection item from your credit reports. This is how to clean up your credit report dings, blemishes, and remove negative items, and do so legally. Both the charge off account and the subsequent collection debt.
The most common stumbling block, and where most folks just give up is in the process of getting the credit bureaus to deem your dispute valid. Because the standard response from the credit bureaus is to find your dispute frivolous. This too is because of the dollars and cents.
Listen, the credit bureaus must spend money that’s otherwise profit when they investigate consumer disputes. And being for-profit businesses, the credit bureaus are incredibly hesitant to investigate consumer disputes.
The only reason they do so is because of the FCRA, and federal law requires it. And even that’s debatable. One of the most egregious examples of the credit bureau stall tactics is in 2013.
An Oregon woman, Julie Miller, woke up one day to discover 38 collection accounts were mysteriously showing up on her credit report. These weren’t her accounts, it was a total, bogus mistake.
Naturally, Julie did what she was supposed to and disputed her credit report. However Equifax, over the course of two years, continued to find her dispute frivolous and requested additional information.
Julie complied, and sent in W-2’s, pay stubs, hair samples, DNA, and her first-born child. All to no avail, and yes, that is a small exaggeration. So after two years, she got fed up and sued Equifax.
And won. A federal jury awarded her over $18 million in damages, mostly as punitive damages or the punishment award. Her life damages, compensatory award, was only a few hundred thousand.
The rest of the award was for her frustration, and to hopefully set an example to the other two credit bureaus. This was later reduced by a federal judge to $1.8 million but even after the reduction, she was still awarded nine times in punitive damages, her actual compensatory damages.
In other words, the annoyance and frustration were the biggest reason she won such a large amount of money. And while we all would have liked to believe this would be a wake-up call to all three credit bureaus, it wasn’t.
Because in just 2015, all three credit bureaus collectively settled for $6 million with 31 state attorney generals for allegedly violating consumer rights under the FCRA. This is just an example of the dogfight you’re entering into. It’s very possible, but as the age-old book, The Art of War says you must know your enemy.
Look, it can feel downright impossible trying to survive in this world with less-than-perfect credit. Everything is more expensive. Poor tax, sucks, and it gets old paying it, real quick.
You can remove a charge off from your credit reports, and do so legally. And long before the seven-year maximum amount of time. Keep in mind, there is no minimum amount of time you must live with any negative item on your credit reports.
If you’re working to improve your credit score, an apt analogy is your credit score is a lot like your Grade Point Average (GPA) in glory school days bygone. It doesn’t matter if you’re acing all your classes, if you’re failing The Art of Walking, because this negative mark is going to obliterate your GPA.
This is also true of your credit score. And this is precisely why it’s so essential to clean up credit report dings, blemishes, and remove any negative items. We encourage our members to consider professional, legal, and legitimate credit repair companies to help.
Because in 2016 alone, over 9 million negative items were removed from consumer’s credit reports. One of the best firms is The Credit Pros. They’ve helped client’s successfully remove charge offs, late payments, collections, judgements, liens, and so many more negative credit report items.
Get a free credit consultation with a certified FICO professional by calling toll-free 1-877-418-7596. And for more tips, techniques, and strategies about how to fix your credit score with Dan Willis, sign up for our free newsletter and join our congregation.
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