Although the term “charge-off” sounds good, in reality, charge offs are devastating to your credit report and score. Having an account report in charge off status can bring your score down hundreds of points and may even put that account into collections.
What is a Charge-Off?
An account can get changed into charge off status once a consumer is late 6 months or more. The creditor assumes the debt will not be paid and “charges off” the account. At this time, the entire balance becomes due and the account may be purchased by a 3rd party collector.
How Do I Handle a Charge-Off?
Charge-offs can be considered a serious derogatory account and may hinder you from getting future credit. If you have a charge-off on your credit report, the first thing you should do it contact the original creditor. The charge-off will still need to be paid so try to negotiate with them for a payment you can afford. Creditors will usually be willing to make a settlement for less than the amount owed. However, making a settlement can cause the derogatory account information to remain on your credit report for years to come. Your best option is to see if the creditor is willing to do a pay for deletion.
Send a Pay for Deletion Request Letter
Ask the creditor if you can do a pay for deletion. You may have to pay more than the average settlement amount, but your account will get removed from your credit report, which will increase your score and be beneficial to you in the long term (use this guide to create a pay for deletion letter here.) If the creditor agrees to a pay for deletion, make sure you get the agreement in writing so you can take it to the credit bureaus to ensure the account gets removed.
If the creditor refuses to budge on a pay for deletion, see if you can get them to change the status to “closed” rather than charge-off, as that will also affect your score. Make sure you satisfy the debt regardless of the outcome. If the debt remains unpaid, your account could fall victim to a collection account, or even worse, a judgment.
Removing the Account
If the account remains on your credit report after the debt is settled, you will want to dispute your account. Disputing your account with the bureaus can get your account removed much sooner than its 7 year lifespan. You can dispute your account online with the bureau’s website, by mail or by calling a credit repair company like Better Qualified.
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