What happens to a debt if you fail to pay it? It may ultimately be written off by the creditor, resulting in a charge-off. A charge-off can severely damage your credit, lowering your chance of getting new loans in the future. Fortunately, you can remove a charge-off from your credit report.
In this article, we will explain how a billing error affects your credit score and how to request a removal. We have also provided sample letters for requesting the removal of a billing error from a credit report.
What is a charge-off?
If you stop paying your debt, your creditor may decide that it cannot be collected and write off it as a business loss. This came to be known as a charge-off.
Charge-offs could happen to any type of credit account, including credit cards and loans.
Most creditors don’t charge a late fee until after you have missed several payments. You won’t incur a late fee if your payment is a day or two late.
If you have a payment late for several months, you might be wondering how to remove a charge-off from your credit report. A late payment on your credit report can lower your score for years into the future.
Do you have to repay a charge-off?
Yes, you are still expected to pay your debt – even if your creditor writes it off. A charge-off is not the same as debt forgiveness. Lenders typically sell a delinquent loan to a third-part collection agency.
The debt collection agency will contact you to pay the invoice. Debt collectors are annoying, but they must follow debt collection laws.
You can report debt collectors who do not follow federal laws to the Federal Trade Commission, Consumer Financial Protection Bureau, and your state attorney general.
How does a charge-off impact your credit score?
When a business writes off your debts, they report that to the major credit reporting agencies. The debt is then added to your credit report. Having a poor rating on your credit report is the worst thing that could happen to your account.
It’s easy to see how paying on time is the biggest factor in your credit score. If you start losing money, your rating will fall.
However, a charge-off won’t just lower your credit rating like your missed payment; they remain on your credit report for seven years. Even if you make your other payments on time, potential lenders might price you for a late payment.
You’ll face a greater challenge when applying for new credit, such as credit cards or refinancing, since charge-offs are more difficult to remove from your credit report.
Paid versus unpaid charge-off
What happens if you pay back your charge-off amount in full? Does it still hurt your credit?
Unfortunately, paying off a debt doesn’t immediately remove it from your credit report. Lenders may still view a charge-off and may be unwilling to grant you credit.
However, a paid charge-off is added to your credit report if you pay your debts in full. Some lenders may view a paid charge-off more favorably than an unpaid charge-off.
How to remove a charge-off from credit report
Lenders do not have to get rid of a charge-off from your credit report, even if you pay them back. That said, it is still in your interests to attempt to learn how to remove a charge-off from your credit report. The worst that could happen is your request being denied.
The process of requesting the removal of a charge-off can also enable you to confirm your debts. Lenders and collections agencies make mistakes. Checking all unpaid invoices will help determine whether a billing error exists.
Disputing an inaccurate charge-off
If your credit history has a mistake, such as an incorrect charge-off, you can contact the major credit reporting agencies to have it corrected. You should write a formal letter contesting the error and send it to the major credit bureaus. You should also send the copy of the erroneous data to the institution that supplied it. This includes your financial institution or credit card company.
Be sure to collect any supporting paperwork for your dispute letter. This could include statements, contract agreements, or letters from your lender. You must demonstrate the charge-off is incorrect.
Say, for example, you pay off a credit card bill in full before it is sent to collections. Your credit card company sends you a letter acknowledging you paid the debt.
However, they also erroneously report this charge-off as a non-payable deduction. The letter from the credit card company serves as proof of the mistake.
You could be incorrectly billed for a charge-off. This means that you could have a charge-off, but the amounts could be incorrect.
Say you owe $1,000 on your car, but your lender reports a charge-off for $2,000. You can question the error.
Talking to your creditors
What do you do if the charge-off is correct? Your first action is to contact your creditors as soon as possible.
Take a look at your bank account and decide how much you can afford to set aside for your debt. Having to pay in installments is less costly in the long run. It is more likely that a lender will remove a charge-off if you pay off what is owed in full.
Even if you can’t pay off your entire debt, your lender may be willing to work with you. You may be eligible for a payment-based plan or some other repayment plan.
It is better to be asked and to be told no than to simply accept a rejection of your credit file.
Tips to remove a charge-off
Deciphering how to remove a charge-off from your credit report need not be difficult. Try these tips, which will make it easier to remove the charge-off and improve your chance of approval.
Find the details of the debt
Creditors often sell debt to collectors shortly after reporting a charge-off. Collectors buy and sell debt from other collectors as well. That implies that your debt could have been bought and sold several times after the debt was canceled.
You can obtain a free credit report from each of the three major credit bureaus once every 12 months. You can ask for one report from each bureau every 12 months.
The items you are in need of include:
Negotiate the payment amount
Once you know who is responsible for your debt and how much you owe, it’s time to begin negotiations.
Your lender would like to receive the entire debt in a single lump sum, but many people would prefer to receive some portion of the principal back rather than none. They may be able to set up payment plans to permit you to afford a lower lump sum.
When making an initial partial payment, try starting out with a low offer. This gives you more room to haggle, and you will end up with more cash in your pocket when it’s all said and done.
For example, you can pay up to 60% of your debt in a lump sum. You provide your creditor 25% of your settlement. They return with 75% of what they originally offered and finally agree to 50%.
If your debt is sold, you will have a better chance of paying less than you owe. Most creditors acquire bad debt for a fraction of the original value. You can still make a profit even if you pay less than the amount owed.
Request a “pay for delete” agreement
A charge for delete agreement lets you pay for the quantity you owe for removing the charge-off from your credit report. When removing a charge-off from your credit report, it is necessary to use a “pay for delete” agreement.
In the agreement, you will pay back all or part of your debts. In return, your creditor will remove the charge-off from your credit history.
Your creditor has no obligation to pay you for “delete” of your obligation. If they try to charge off the debt, there is no assurance that they will agree to erase the charge-off.
However, it would be better to ask if they will remove the charge-off than not to bother at all.
Find the right person
Getting your paycheck for delete request into the right hands is vital to successfully delete a charge-off. A low-level worker won’t be able to help you get rid of a charge-off from your document.
You also do not want to send your charge-off removal letter to the usual credit address.
Rather than searching for a lower-level manager or employee who can change your account, you should search for a manager or executive-level employee who has the ability to change your account’s status.
Get everything in writing
Regardless of the kind or tone of a conversation, always get an invoice or removal agreement in writing.
Ideally, you will get the supply contract on company letterhead and signed by the owner or executive who agreed.
This protects you from losing your contract to the company backing out. Do not pay any bills unless you have the contract in writing.
How to remove charge-off from credit report by contacting your creditors
The letter you send your creditor to remove your charge-off is called a “pay for delete” letter or a goodwill letter. Generally, you send a pay for delete letter if you’ve not paid the debt and a goodwill letter if you’ve already paid.
When seeking to easily remove a charge-off from a credit report, a letter may be your best option. How you build your letter will either make or break your chances of successfully removing a charge-off from your credit history.
To eliminate charge-off from your credit report, please review the sample letter below.
Sample letter to remove charge-off from credit report
If you have money left to pay off on your charge-off account, good news awaits. You can use this money to leverage creditors into agreeing to a payment for delete (PFD) agreement.
Your repossession letter should highlight the benefit to the lender. That is, your lender will get a portion of its money back if they remove the remaining balance on your obligation.
Pay-for-delete sample letter
[Date]
Please enter your name here
Here is your address:
[Lender/collector’s name]
[Lender/collector’s company]
[Address of the company]
Your account number is 11993.
Dear [Lender/collector’s name or “Collection Manager” if unknown],
This letter is referring to the alleged debt owed on the account listed above,
You should note that this letter is not an acknowledgment that I must pay the debt and is not a rejection of the claim. I reserve the right to ask for proof that the debt has been paid and do not accept any payments until I have received a written agreement to the terms of the letter.
I am willing to pay off
This payment is made in exchange for your written and signed confirmation of the cancellation of this debt from all records of credit reporting agencies.
If you accept these terms, please sign them on a letterhead of your company. The signature must be by someone with the authority to bind the company to this contract. Once I receive your approved contract letter, I will send you a payment for the debt in the amount of $X.
The offer will be valid for two weeks from receipt, after which it will be rescinded and a request for a full proof of the supposed debt will be required.
I look forward to helping resolve this issue for our mutual benefit.
My sincere thanks,
Please sign your name.
Please print your name here
Sample goodwill letter to remove paid charge-off
If you haven’t yet paid off the debt, you should send a goodwill letter to the lender to cancel your payments. Essentially, this letter acknowledges your missed payments and payment for the debt and asks for forgiveness from the creditor.
Unlike a payment for delete letter, a donation letter does not have the power of a paid off invoice. Your lender already has your money, so your request may have less value. With a bit luck and politeness, you may be able to have your discharge waived from your credit history.
Use this sample goodwill letter to remove billed debt from your bill.
Goodwill removal sample letter
[Date]
You are [your name]
Here is your address:
[Lender/collector’s name]
[Lender/collector’s company]
[Address of the company]
Your account number is 1399-2584-4272.
Dear [Lender/collector’s name or “Collection Manager” if unknown],
Thank you for your consideration by reading this letter. This letter refers to
I understand that this payment was retroactive after a previous late payment on my account for
I am currently applying for a mortgage
I would like to request a goodwill modification to remove the charge-off status of this account reported to credit agencies. I believe this will improve my approval chances for future credit.
Thank you for your effort and time, and I look forward to hearing your response.
My sincere thanks,
Please sign your name.
Please print your name here
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Start learning how to remove a charge-off from your credit report
It’s always best to try to have the charge-off removed from your credit card account. While there is no promise your creditor will remove the charge-off from your account, it’s always best to try.
If successful, you will evade having a major negative credit event for upwards of seven years.
Don’t wait for debt collectors to start calling – get your latest credit report and make sure that all of your obligations are current and accurate today. And check out our free debt payment course to help you succeed.
