By the time your account gets charged off, you’re already 180 days late and you've suffered significant damage to your credit. Once a charge-off is on your credit report, it will remain there for seven years from the date it was charged off. In total, the account remains delinquent on your credit report for seven and a half years. That's a long time to have such a negative entry on your credit report.
A charge-off is one of the worst types of credit report entries. It's the result of not making your credit card payment for several months - usually six months in a row. The creditor writes off the debt as a loss (in their own accounting books), cancels your account, and demands the past due balance in full.
Charged-Off Doesn't Mean Forgiven
Don't let the name fool you. You're still responsible for paying a charge-off. As long as the charge-off remains unpaid, the creditor can continue attempts to collect on the account and that may include suing you for what you owe.
Future creditors and lenders take charge-offs seriously, to the point that they may deny any future credit card and loan applications, so it’s in your best interest to remove charge-offs from your credit report. Negotiation is your best tactic for reducing the effects of a charged-off account.
Talk to the Creditor
Often, charge-offs are handed to a debt collector soon after the charge-off date. But, when it comes to charge-offs, it's better to deal with the original creditor (who reports the charged-off status) than a debt collector. A collector can’t do anything about what the original creditor reports to the credit bureaus.
To remove a charge-off, you should contact the original creditor. You want to convince the creditor to remove the charge-off from your credit report in exchange for payment. Before you make the call, know how much you’re able to pay on the account. The more you can pay and the sooner you can pay it, the more negotiating power you have. Ask to speak to someone who has the authority to remove the charge-off from your credit report. Otherwise, you face the risk of getting told “no” by someone who couldn’t say “yes” if they wanted to.
Let the creditor know you’re interested in paying the account and would like to make payment arrangements in exchange for having the charged-off status removed from your credit report. Speak politely and professionally. Avoid blaming the creditor or giving your life story. Keep it short and to the point. Best case, the creditor will agree to remove the charge-off from your credit report.
Sending a pay for delete letter is another way to negotiate a charge-off removal. The letter essentially asks the creditor to remove the account from your credit report in exchange for full payment. The key to a successful pay for delete letter is getting it in the right hands. Try to get the name and direct address of someone who works in the company, a manager or other higher-up employee, rather than sending your letter to general correspondence address.
Credit card companies are contractually bound to report credit information to the credit bureaus, so it can be difficult to get a creditor to agree to remove the charge-off from your credit report. Even so, some cardholders have been successful in making a pay for delete agreement. If you can’t get the creditor to agree to remove the charge-off completely, try for something less negative like “Closed”.
Get the Agreement in WritingWhen the creditor agrees to remove the charge-off from your credit report, get the agreement in writing. You can do this in one of two ways:
- Have the person you spoke with fax you a copy of the agreement on company letterhead.
- Alternatively, get the name, mailing address, and phone number of the person you spoke with. Send a copy of your agreement to that person via certified mail with return receipt requested. Request the person sign and return a copy to you.
Avoid making payment until you have the agreement in writing and can prove beyond the shadow of doubt someone from the creditor’s office made the agreement.
Once you have fulfilled your part of the agreement, check your credit report to make sure the creditor has removed the charge-off.
When You Can't Get Your Way
If all fails and you can’t get the creditor to budge, decide if you want to pay the account or not. Even though the account will continue to be reported as charged-off until the credit reporting time limit is up, it will affect your credit score less as time passes. However, some lenders will not grant you new credit or loans until you’ve taken care of all past due account. So, if you plan to get a mortgage or auto loan in the next seven years, it’s better to pay the account. Once it’s paid, make sure your credit report reflects payment.