There is a great deal of confusion among consumers about how to handle charge-offs on a credit report. It is well known that a charge off is considered to be negative credit but what is the best way to handle it? Should I pay off this bad debt? Should I not pay off this bad debt? Well the answer may confuse you as the answer to both questions is “yes”!
What Is A Charge Off
What does charge off mean? The definition “charge-off” just refers to a debt that the lender has been unable to collect. Often they will give up trying to collect the debt and refer the bad debt to a collection agency. Many times this makes it worse for the consumer as both the original debt owner and the collection agency can report the bad credit. This will make 2 negative marks on the credit for just one charge off account.
Your credit can be affected by a charge-off for as long as 7 years. You can get an old charge-off removed from your credit, however this is simpler to do if the charge off is a paid charge-off. Even so the problem with paying off an old charge-off is that the account then is shown as current and the cycle of 7 years begins again so a “paid charge-off” will show for another 7 years regardless of how many years it was on there before.
So what is the best way to handle this situation? Well before you pay off the old debt make sure that you get an agreement in writing from both the original lender and all of the collection agencies that says that once the debt is paid they will delete it from your credit report immediately. This technique is referred to as a “pay for delete“ and it is the best way to pay off an old charge-off.
When the creditor agrees to remove the charge off on credit report remember 2 things:
1. Get the agreement in writing. You will likely need to begin on the phone to ascertain the correct person with whom you should be negotiating. However, once you know who that person is, send everything in writing and request they do likewise.
2. Request that the creditor list your account as “Paid as Agreed” or “Account closed – Paid as Agreed.” Any other listing will be a negative mark on your credit report.
Are you aware of the fact that you have the right to dispute any items shown on your credit report? The Fair Credit Reporting Act was enacted to provide consumers the right to dispute anything that shows on your credit report, including charge-offs, collections, tax liens, judgments, repossessions, foreclosures and even bankruptcies. You can attempt to repair your credit yourself or you can hire a professional credit repair company.
Remove Charge Offs
In order to dispute items and removing charge offs from credit report, you will need to contact the credit reporting agencies. You can do this by a phone call or contacting them online but the most effective way to approach them is to send a formal letter. This way you will always have proof. The credit reporting agencies have 30 days to investigate your claims so be sure to document all dates.
During that 30-day period the credit reporting agency is required to contact the original lender and the collection agencies with your disputes. They will also check out any public records. It is up to you to follow up with them and make sure that everything is being completed. Credit repair takes some time to complete but if you don’t follow up it can end up taking even longer.
You can repair your credit on your own but there are professional credit repair companies that have the legal expertise and knowledge to help in the process. It may be worth your time to contact one of these companies first to see if they can make it easier for you.