It’s easy to argue that debt has become part of the American way of life, as is Starbucks, McDonald’s, and sports. As a veteran credit advocate, I have noticed that many Americans don’t understand how lending and debt work in the back-end.
As a result, most are left struggling with charge-offs after defaulting payments to their creditors, which sticks out on credit reports.
In most cases, a single charge-off takes away more than 100 points from a perfect credit score. When other creditors see a charge-off on your credit report, they will likely cut you off their credit lines.
If you have a charge-off, you likely are considering enlisting the help of credit repair companies to get rid of it. But, can credit repair companies remove charge-offs? Here are insights into the burning credit repair questions you might have.
1. What’s a charge-off?
A charge-off is more appropriately referred to as a charge-off account. It comes about after you default on your non-collateralized installment agreement or credit card payment for an additional 180 days after the initial 30-day payment extension has lapsed.
A charge-off account is created on your credit report after 180 days, when the creditor will embrace the payment default as a bad debt. Therefore, it will take an estimated 210 days after you default on your debt repayment for a charge-off account to be created on your credit report. The creditor will report the bad debt to the credit bureaus, which will list the charge-off on your credit report.
Keep in mind that the creditor creating a charge-off account doesn’t mean that you are free of your debt. They can still sue you as long as it’s still within the statute of limitations for debts in your state and compel you to pay. Even if you later settle the debt, the charge-off account will remain on your credit report for a period of seven years from your last payment.
2. Will credit repair companies help?
Having charge-offs on your credit report can be pretty damaging to your financial well-being.
- It would be challenging to access credit as lenders might blacklist you.
- The few credit opportunities you will have will carry a steep interest due to your perceived high-risk factor.
- Some employers might be unwilling to work with you after doing a background check and finding charge-off accounts on your credit report. They will assume you are irresponsible.
As already mentioned, settling a charge-off account doesn’t mean that it will be off your credit card report until after seven years from your last payment. Despite this, there are some exceptional circumstances where you can have the charge-off accounts deleted from your credit report.
Credit repair companies can help you find how your case fits into these circumstances and try to remove the charge-offs through special dispute letters. These circumstances include;
An unrecognized account.
You might find yourself with a charge-off on an account you do not recognize. A credit repair company will help you draw up a special dispute letter to contest it in such a case. If it is proven that you are not aware of how the account came to be, then the charge-off will be erased from your credit report.
Removal of hard inquires
Sometimes you can come across an unauthorized hard inquiry. You can file a dispute letter to remove this from your credit report. If this is unauthorized, you have the right to dispute it and push to remove it.
A victim of fraud
When it comes to ending up with a charge-off on your credit report as a victim of fraud, there are two scenarios – either an account was opened fraudulently, or there are fraudulent charges on your account. Let’s explore these scenarios;
a) Fraudulently opened accounts.
In an instance where an account was opened fraudulently, and you are certain that was the case, seeking the help of a credit repair company to have the issue addressed is prudent. Today, identity theft is quite rampant, and you might have fallen victim to it without your knowledge.
When the criminals open accounts using your details and take credit and default, you might only discover that you have a charge off after it shows up on your credit report.
The credit repair company will help you submit the identity theft reports to the FTC (Federal Trade Commission) and the relevant local authorities. They will also pass along copies of the reports to the credit bureaus and the creditor and begin the process of disputing the fraudulently opened account.
b) Fraudulent charges on your account.
On the other hand, your account might have incurred fraudulent charges leaving you with a charge-off. You have the right to dispute the items in question under the Fair Credit Reporting Act, which affords fraud victims some level of protection.
Here, you will also have to present the necessary fraud reports as you would for accounts that have been opened fraudulent as directed in section (a). Keep in mind that you need to be specific in the reports you file, which items you claim are fraudulently incurred charges, and work closely with your credit repair company to win the appeal.
Victim to lackluster accounting.
Sometimes, you might end up with a charge-off on your credit report due to the accounting errors done by the creditor. These errors can include feeding incorrect payment amounts, dates, and history. A credit repair company can leverage into their experience to find disparities in your account record and will help you dispute the parts with issues.
If you have a situation, where you did not pay late, however, a creditor is saying you paid late, you must remedy this.
In cases where the information is deemed unverifiable, your account will be deleted. If the disparities are not that big, the credit repair company will directly approach the creditor.
You cleared your debt more than seven years ago.
Suppose you cleared your charge-off account more than seven years ago and it still appears on your credit report. In that case, you can ask your credit repair company to write a special dispute letter against this.
In line with the 7-year statutes for credit reporting, the credit bureaus will be compelled to erase the charge-off from your credit report. Count the seven years from the last day you made payments to that account and not the day you opened it.
3. Tips on how to avoid charge-off on your credit report
As with many other financial blunders, avoiding charge-offs is much easier than dealing with them once they appear on your credit report. Here are tips on preventing charge-offs.
Try to pay off your debts in time.
Paying off your debts in time means that your creditors will have no reason to put a charge-off on your credit report. This will also work to improve your credit score as creditors will be more confident lending you as they know you will pay back on time.
If you have a habit of forgetting your payment dates, you can rely on automatic payments. This means that your remittance will automatically be direct to your creditor when due.
Establish open communication channels with a lender.
As life is unpredictable, something can happen that would mean you can’t issue out regular remittances to your lender. This is the time to establish open communication channels with them and explain to them the situation.
You can find your creditor to be more understanding of your situation than you imagined. You can request for the term of your loan to be extended and reduced to your minimum payment.
Control your appetite for credit.
If you can avoid credit, then do so. Then, you will have no chance to end up with a charge-off. Suppose you already have one charge-off on your credit report. In that case, you can avoid getting more by controlling your appetite for credit.
Credit Repair Take away
Take the tips for avoiding charge-offs mentioned and put them into practice. Before you take credit, have a solid plan on how you will pay it back.
How do Credit Repair Companies Remove Negative Items?
Paul Martinez is the founder of BendingDestiny.com. He is an expert in the areas of finance, real estate, and eCommerce.
Join him on BendingDestiny.com to learn how to improve your financial life and excel in these areas. Before starting this blog, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.