Tips to Overcome Charge-Offs

African American woman expresses joy as she hears news on her cell phone

Let’s face it – collections and charge-offs negatively affect your credit scores. Most companies that have “charged-off” your debt have probably tried to collect it for 6 -12 months already before charging it off.

Charge-offs can stay on your credit report for seven years from the date it was charged off which means it could stay on your report for 7- 7.5 years or more! That’s a long time for negative information to remain on your reports.

Just because it says charge-off does not mean the debt is forgiven by the creditor.

The responsibility for paying a charge-off still lies with you. The creditor can still try to collect the debt, sell it to a collection agency or take you to court and attempt to win a judgment and garnish your wages.

How Can You Overcome a Charge-Off?

The first thing we suggest is to make sure it is reporting accurately and see if it has been sold to a collection agency.

If the debt has been sold to a collection agency, then the original creditor should be reporting as such and you should now have a zero balance on the account. The collection agency should be reporting the dates (date of last activity or DLA: the last activity from the original creditor), the original creditor and the balance correctly.

You cannot (should not) have the same debt reported from two different collection agencies.

Anytime a charge-off can be removed from your credit report it improves your overall credit profile. And any negative item (that can report for up to seven years on your report) that is removed from your credit report is always GOOD!

You can check on the Statute of Limitations (SOL) for debt in your state. Some states are just 3 or 4 years! The SOL usually begins from the DLA (date of last activity) from the ORIGINAL CREDITOR.

You Can Leave the Debt Alone OR Call the Creditor/Collection Company

The charge-off is usually reported by the original creditor, not the collection agency. The collection agency cannot do anything about the charge-off that the original credit is reporting.

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, you should know how much you’re able to pay on the account.

If you can pay and settle right away then you will have more bargaining power. If you have to make payments, try to make just 2 or 3 big ones and get it paid.

Be extra nice and polite on the phone. Don’t place any blame on the creditor. It’s best to keep it short and to the point.

Ask if they will delete the account if you make a payment. If they say they can’t do that then ask them to transfer you to someone who has the authority to make this decision. If they won’t delete the whole account after payment then ask if they will delete the notation charge-off and enter either “paid” or “closed”.

Close up of a credit report and a pen. Remember, 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. This is a goodwill gesture on their part.

If you get a settlement agreement with a “deletion” included you have hit a home run! If not try to settle for getting the charge-off removed and replaced with paid or closed.

Get Your Settlement in Writing

If the creditor agrees to a settlement then get it in writing! If they agree to remove it from the credit reporting agencies, then suggest that they add one line to the settlement letter like this: “We agree to remove this item from the credit bureaus after payment is received.” Ask them to specify the names of the credit bureaus they will notify.

If you can’t get the removal, remember to ask them to remove the “charge-off” notation and ask to have it changed to “paid or closed”.

Give the agency the option to mail, email or fax the letter to you. It’s typical for collection agencies to request they receive payment right away, so be prepared to pay that day or within a few days.

Once you have your letter then you can mail it in to the credit bureaus to make sure it’s reporting as agreed. Or, you can wait to see if the creditor does it (this can take 30 days or more from the day that they report it).

Save all your settlement letters from all the creditors. Sometimes these debts get resold and they have the potential to show up again. This will protect you and give you proof that the debts they are settled.

What if They Won’t Delete the Charge-Off or Negotiate the Settlement?

If you can’t get them to settle the debt or delete it, you may want to decide if you want to pay it or just leave it alone.

There is a state statute of limitations on debts. This will tell you if it’s past the time that they can legally collect the debt.

If you decide to leave it alone, then be aware that over time it will affect your scores less and less, and after 7 years it will be removed from your report. If your future plans include buying a car or getting a mortgage, then we suggest that you check with your lender to see if the debt(s) must be paid in order for you to qualify.

A good rule of thumb is to pay the debt(s) or make an effort to settle them so it’s permanently behind you.

Your credit score can determine how much money you can save on your mortgage, auto loans, credit cards and casualty insurance premiums. To learn more about credit scoring, download our Free Ultimate Guide to Credit Scoring now.

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