Having an account charged off does not relieve you of the obligation to repay the debt associated with it. You may be able to negotiate for the removal of a charge-off from your credit with your creditor or debt collector.
It's rare to have creditors or credit reporting agencies remove a charge-off from your credit report. You can either pay the charged-off account in full or settle the debt. The steps for negotiating a charge-off settlement include: Determining who owns the debt.
Try to negotiate a pay-for-delete arrangement If your debt is still with the original lender, you can ask to pay the debt in full in exchange for the charge-off notation to be removed from your credit report. If your debt has been sold to a third party, you can still try a pay-for-delete arrangement.
Typical debt settlement offers range from 10% to 50% of what you owe. The longer you allow debt to go unpaid, the greater your risk of being sued.
"The 609 loophole is a section of the Fair Credit Reporting Act that says that if something is incorrect on your credit report, you have the right to write a letter disputing it," said Robin Saks Frankel, a personal finance expert with Forbes Advisor.
If the charge-off is legitimate If after investigating you find that the charge-off on your reports is legitimate, it's important to take action and pay it off. It may be tempting to not pay a charge-off, since your lender has likely stopped trying to collect on the account.
Will paying a charge-off increase your credit score? Paying will not increase your credit scores. If you are facing a debt collection lawsuit, paying a charge-off can avoid legal actions. But even with a zero balance, your credit reports still show a history of late payments and the fact the account was charged-off.
Charge-offs tend to be worse than collections from a credit repair standpoint for one simple reason. You generally have far less negotiating power when it comes to getting them removed. A charge-off occurs when you fail to make the payments on a debt for a prolonged amount of time and the creditor gives up.
Like your lawyer told you, negative information such as foreclosures and charge-off accounts remain on your credit reports for seven years from the date of the first missed payment. After this cycle is completed, they will automatically fall off.
And now, due to COVID, credit bureaus are offering free weekly credit reports until April 2022. The only sure way to remove a paid charge-off account from your credit before the seven years end is if there's a mistake. If there isn't, there's nothing to do but wait for it to be removed automatically.
Paying a closed or charged off account will not typically result in immediate improvement to your credit scores, but can help improve your scores over time.