A charge off is a negative credit rating that happens when a creditor reports to the credit bureaus that you have not paid a payment or debt owed. The creditor, when realizing that payment will not be made and cannot expect to be made, can essentially write off the debt on their businesses profit and loss sheet to clear the outstanding amount owed off their balance sheets.
However, this is very different from the creditor forgiving your debt. In the instance of a charge off, you are still liable for the amount owed to the creditor and should anticipate that the creditor, or an outside debt collecting agency hired by the creditor, may pursue you for payment and may even result in a judgement on your credit report that will remain on your report indefinitely since debt judgements can be renewed. If you have a judgement levied to your credit report, you can face years of calls and legal action from collection agencies and could even be subjected to having your wages garnished to pay the debt due.
If you have a charge off on your credit report, you need to familiarize yourself with the statute of limitations for credit collection and reporting in your state (they vary state-to-state and can be as high as seven years) as well as the Fair Credit Reporting Act (FRCA), a federal law that regulates the credit reporting agencies and protects consumers. The bottom line: you will need to act as soon as possible to have the charge off removed by the creditor or collection agency.
First, everyone, no matter their credit history - bad or good - should check their credit report once a year from one or all of the three major credit reporting agencies: Equifax, Experian, and TransUnion. Be sure to read through each report, line by line, and look for known issues as well as anything that shouldn't be there. If you are recovering from bad credit and see that non-payments to creditors are now showing up on your credit report as charge offs, be prepared for collection agencies to begin contacting you if you haven't already received calls and letters.
Even if you have excellent credit, mistakes happen. Payments can be received past due dates and never noted by your creditor - even if the check is cashed. Computer errors and human errors can occur as well. For this reason, it is always wise to keep your bank, debt, and all financial records organized and up-to-date so that you can access them when and if needed to verify your claims of a lost payment or other financial issue.
The best process to removing a charge off from your credit report is to directly contact the creditor with a letter that provides proof of payment. Here is an example of a letter that you can customize to your needs:
To Whom it May Concern,
I am contacting you in regards to my account with your company, account (insert account # here). In a recent review of my credit reports from the three major credit agencies, I see that this account has a charge off noted. I am writing this letter to request a goodwill adjustment to my credit report in regards to this account and a removal of the charge off from my report.
(In the second paragraph, you will explain your reasons for asking for a goodwill adjustment. This is where you would explain if there was a mistake - ie, a payment was made and cashed from your account but never noted by their accounting department. Or, you can state that you have made regular payments on this debt for the past (#) of months and have never missed a payment. Or, if you are not current on this account, you can state that you have arranged with the creditor's collection office or agency a payment plant o become current on the account. For each of these scenarios, you will need to provide documentation accompanying your letter as proof of your payment/payment plan.)
According to my understanding of the Fair Credit Reporting Act, your duty as a creditor is to accurately report on all accounts and to correct any and all mistakes as found by your accounting department or by myself as the consumer. I thank you in advance for upholding the federal law as dictated by FCRA, changing my account status to current, and removing the charge off immediately.
With sincere respect,
(Insert your name here)
Attachments: (Here you note how many documents you're sending with this letter as proof of your claims in the second paragraph)
Remember to date the letter and to make a copy of the letter for your records. Also, when sending accompanying documents as proof for your request to have the charge off removed from your account and your account returned to current status, remember to send copies of the original documents (such as bank statements showing payment made, cancelled checks, or payment agreements made with the creditor to bring your account back to current status). Never send the original documents as those are your copies to keep and maintain in your financial history files.
Last, wait two to three weeks after sending your request letter before contacting the creditor by phone to follow up on the status of your request to have the charge off removed and your account returned to current. Oftentimes, the collection and accounting departments of businesses are overwhelmed by requests and have a backlog of letters to which to respond. Finally, be sure to ask for written confirmation that the charge off will be dropped and the account returned to current status in case there is any delay or questions with the credit reporting bureaus.
Dealing with a charge off on your credit report can be daunting, but with planning, documentation, and patience, you can get the charge off removed and continue on your journey of credit recovery.