Removing a charge off from a credit report is possible, but it is a complex task. A charge off is an unresolved debt that can linger on a credit report for almost a decade. Only lenders can post this negative remark on a credit report. Settlements are a poor option for resolving charge offs and dealing with debt collectors is intense. Debtors with charge offs do have rights but risk forfeiture of some financial assets. Debtors can take some actions to protect themselves, but the best action they can take is to get help.
Charge Offs Defined
A charge off is a debt that a creditor has written off as a loss. The creditor will no longer extend credit to the account holder. A charge off is not an absolved debt. Debtors with a charge off on their credit report are still liable to pay. A creditor can continue collections efforts, sell the debt to a collection agency or pursue legal recourse. A charge off gives a creditor an avenue to recoup their losses. It is among the worst marks a borrower can have on their credit report. However, once a charge off falls off of a credit report, it no longer shows on a debtor’s record or affects their credit score.
Why A Charge Off Lingers
Law requires that a charge off remains on a credit report for a certain amount of time. Current credit laws not only protect consumers but lenders as well. When a company charges off a debt, this does not resolve the matter. During the seven-year period a charge off is active, the debt will continue to pass through collection agencies who will attempt to recover the loss. A credit collection agency cannot remove a charge off from a credit report. The original credit issuer must have the mark removed. However, if a debtor finds a charge off on their credit report, more than seven years old, they can contact the reporting agency directly to have the error removed.
Charge Offs Originators
Only a company that has extended financing to a borrower can add a charge off to a credit report. Charge offs are typically created by companies that have unsuccessfully tried to collect a debt over a period of six to 12 months. Credit card companies are legally required to report charge offs to credit reporting bureaus. Changing a debtor’s account to charge off status also allows the company’s accounting department to settle the account. The accounting department will recoup some of the debt by writing if off as a tax loss. In addition, the company can recoup some of the loss by selling the rights to collect the debt to a collection agency.
Impacts of Being Charged Off
Charge offs are damaging for credit scores. It sends the message to creditors that a borrower does not pay their debts. They may remain on a credit report for seven to seven and a half years, beginning with the day of the first missed payment leading to the charge off. A credit report will remain negatively affected for two years after the initial charge off. At that point, a lack of negative activity can make a steady, nominal improvement in a credit rating. A charge off will make obtaining credit and loans difficult as lenders view debtors with charge offs as high risk loan candidates. The charge off event will remain on the debtor’s credit for a full seven years, but a full payment, on record with the credit reporting agency, will offset the negative remark. Typically, when a debtor with charge offs attempts to secure a loan, the bank will not consider financing them until they have paid off the debt.
Some companies may accept a partial payment, called a settlement, and regard the debt as paid in full. This option may sound like a good idea, but there are consequences to using this method. Credit reporting agencies make note that the debtor used a settlement to clear the debt. In many cases, creditors will not extend unsecured credit to debtors who use settlements to resolve delinquent debts for months or even years. Furthermore, the Internal Revenue Service considers forgiven debt as taxable income. It is the debtor’s responsibility to report forgiven debt to the IRS.
Debtors may find it difficult to manage calls from debt collectors. As a charge off passes between collection agencies, each collection service may add their own collection fee. Each state has different rules as to how long collection agencies can pursue debtors. Nationally, debt collectors can continue to recoup funds for around four to five years. If the time it is legal for a debt collector to seek remuneration has passed, a debtor can write a letter to have the agency stop their collection attempts. A debtor can write a request for a collection agency to cease communication earlier, but this is ill-advised as the only recourse left for the agency is to seek a wage garnishment.
Consumer Credit Rights
The government enforces rights that protects debtors with charge offs. A charge off more than seven years old should no longer appear on a credit report. This is a law covered under the Fair Credit Reporting Act, a legislation designed to protect consumers. Furthermore, collection agencies cannot pursue the debt or attempt to have the charge resubmitted on a borrower’s credit report. Around the seven-year point, a debtor can write the credit reporting agency directly to have the negative mark removed from their credit report. It is important to make sure the credit reporting agency removes these negative marks. Creditors, and credit reporting agencies, have no real incentive to do so.
Creditors have a right to garnish certain financial assets. The right of a creditor to seek remuneration out of a debtor’s financial assets varies by state. Certain states have laws that prevent debt collectors from garnishing individual retirement accounts (IRAs). In addition, bankruptcy protects debtors from collection in some states. Federal law protects certain employer based retirement savings plans using a predetermined set of criteria. For debtors, it is important to know what financial assets creditors can, or cannot, attach.
Actions to Take
A debtor should take steps to protect themselves when they receive a charge off on their credit report. The initial step debtors need to take is to figure out who owns the debt. In addition, they need to make sure the debt is not recorded as owed to two different companies. If the original creditor sold the debt, then they should record a zero account balance. Removing duplicate accounts, such as these, can help improve a credit rating. Credit agencies prefer to leave both accounts on their report until the debtor has paid the collection agency. Also, debtors should save the receipts of any payments made on a charged off account.
Removing Charge Offs
It is sometimes difficult to have a charge off removed from a credit report even after settling the debt. For debtors with charge offs on their credit report, it helps to have someone experienced assist in navigating through all the steps required to have a charge off removed. Lexington Law has helped people with credit repair issues for almost 20 years. Our firm can help borrowers understand exactly what they must do to remove charge offs from a credit report. In addition to helping clients remove charge offs from their account, we provide borrowers with a free credit score. Contact Lexington Law today for a free consultation.
Although it is not easy, debtors can have charge offs removed from their credit report. Charge offs are a final resort for lenders to recoup financial losses. Only a moneylender can create a charge off on a borrower’s credit report. There is no better option to resolve a current charge off than paying the balance in full. Even after paying, borrowers may still have the bad mark on their credit report. The best action a borrower, with a charge off on their credit account, can take is to get help from an expert experienced with credit repair.