What Are Charge-off Accounts?
If an individual falls behind for 30 days on a credit card, line of credit or non-collateralized installment agreement the creditor will report a 30 late payment on the credit report. However, if a payment is not made for the duration of 180 days, the creditor will report the account as a charge-off.
A newly incurred charge-off is an account that impacts the score very negatively, in cases where it is the only negative account on the credit report, a perfect credit score may be reduced by as much as 100 points. In this scenario, a consumer may see their pre-existing credit line limits cut, when his/her creditors access the account for an annual review and see a charge-off on a credit report.
Does A Charge-off mean the amount is no longer due?
A charge-off status simply means the creditor was unable to get a payment from the consumer for over 180 days, after which by law the creditor had to report the account on the books as a bad debt. This does not mean the creditor was absolved of the debt. The creditor can legally still try to collect for the duration of the statute of limitations and also file suit in court in order to obtain a judgment against the debtor. The creditor is also legally permitted to either sell or assign the debt to a third party collection company. Unless the charge-off is due to identity theft or fraud.
How Long Can a Charge-off be Collected on for?
As discussed, the creditor can still legally collect on a charge-off, file suit or refer the account to a collection company as long as the account is within your state’s statute of limitations. This is assuming that the account is not relating to fraud or identity theft issues, in which case you’d be able to do fraud and identity theft claim. The statute of limitations is the duration of time a creditor is allowed to collect on a debt in a specific state. Find out what the statute of limitations for debts is in your state. You should never dispute a valid and accurately reporting charge-off account if it’s within the statute of limitations and if it’s an account you are unable to settle in a lump sum payment. Disputing such a debt may put you on the creditor’s radar and they may be more likely to file suit.
How Long Does a Charge-off Stay on the Credit Report for?
A charge-off account will appear under the negative column of the credit report for up to 7 years from the date of last payment. You can figure out the date of last payment by looking at the payment history of the account and looking for the last 30-day late payment incurred on the account. The month before the last 30-day late payment was reported is the date of last payment, also known as the date of last activity. Adding 7 years to this date will give you the estimated date when the charge-off account is scheduled to fall off your credit report.
Should you payoff or Settle a Charge-off?
If the charge-off is valid and accurate then you can look into settling the charge-off. Although every creditor may differ, it is very common for them to offer negotiated settlements on charge-off accounts. The debtor is in the best position to negotiate with a creditor once the statute of limitations has expired on a debt. Major banks such as Citibank, Chase, Bank of America and Wells Fargo often settle debts for as little as 20% of the original amount charged-off, however, such a low settlement is most likely when the charged-off amount was a few or several thousand dollars. The lower the amount the less likely it is to get a significantly lower settlement. For instance, for a charge-off amount of $300 the creditor is not likely to reduce the settlement amount. However, if the account is being reported by a collection company, then you may be able to settle in exchange for deletion if you come to an agreement with the collection company. In the event, the collection account is linked to an unrecognizable or frivolous account then you can challenge it using debt validation. But this will not remove charge-off, which will still remain on the credit report as a paid charge-off account.
Does Paying off a Charge-off Increase your Credit Score?
Charged-off accounts are not going to be deleted from the credit report even if you offer to pay the finance company. So simply paying off a charge-off account will not yield an appreciable boost to the credit score. There are other ways to remove charge-offs, which are discussed below.
How to delete a charge-off from a Credit Report?
The Final Step: Take Action to remove charge-offs
Now comes the time to figure out what to do about this problem.
Take action now, Begin to work on this problem. If you’re unable to do so or if you’re overwhelmed. Then, you may need to hire a professional.
From experience I can tell you that the sooner you take action to remove a charge-off, the better the chances of success.
So here’s what I suggest you do next: