A charge-off can have a significant impact on your creditworthiness and cause potential lenders to reject your application for a loan. In turn, this could derail your plans to finance a major purchase, like a home or vehicle.
The good news is that it’s possible to remove some charge-offs without paying. Here’s what a charge-off is and how to remove it from your credit report.
What is a Charge-Off?
First things first, what exactly is a charge-off?
A charge-off is information on your credit report indicating that a creditor has, after attempts to work with or contact you, given up on getting you to pay your debt and terminated your account.
Having a charge-off is a substantially negative event that can significantly impact your credit score. If you go between 120 and 180 days without making a payment to your account, many creditors will consider it a charge-off.
Do Charged-Off Accounts Show on Credit Reports?
Yes, charged-off accounts will show up on your credit report. In many cases, a charge-off will stay on your credit report for up to seven years.
Not only do charged-off accounts get recorded on your credit report, but these accounts also impact your credit score. The negative information can drag your credit score down.
A major reason behind the hit to your score is the tie to missed payments. Payment history is the most heavily weighted factor of your credit score.
If an account is charged-off, it’s the result of a series of missed payments. This negative information can pull your credit score lower.
Having a lower credit score can make it difficult to obtain financing for big purchases. It may even make it harder to get a credit card or result in higher interest rates on any loans you do receive.
Ways to Get Rid of a Charge-Off
If you have a charge-off on your credit report, getting rid of it should be a top priority. Here are the strategies you can use to get it removed.
File a Dispute
The first thing to check is whether or not the charge-off is legitimate. In some cases, an inaccurate charge-off will appear on your credit report.
If the information is incorrect, you can dispute it with the credit bureau. Be prepared to provide details to refute the inaccurate charge-off. With the correct information in hand, you can have an erroneous charge-off removed within 30 days.
Keep in mind that this strategy will only work if the charge-off is illegitimate.
Negotiate With Your Creditor
Creditors can report charge-offs to the credit bureaus, but they also have the power to remove the information.
If you have a charge-off on your credit report, you can negotiate for the creditor to remove it. This is considered a ‘pay for delete’ arrangement, which is considered legal by the Fair Credit Reporting Act.
When pursuing this option, you can negotiate a partial payment in exchange for a deleted charge-off. In many cases, the creditor would prefer to receive some level of repayment than none at all.
Be sure to get the charge-off removal agreement in writing. Otherwise, you could end up paying for a deletion that never happens. Also, make sure to avoid giving the creditor access to your bank account.
Although you’ll have to pay something to get the charge-off removed, you might not have to pay the entire outstanding balance.
Talk to a Credit Repair Company
Credit repair companies can help you get charge-offs removed from your credit report. Instead of going it alone, you’ll have the help of a professional as you navigate the charge-off removal process.
These companies can generally help in two ways:
- Getting illegitimate charge-offs removed from your credit report
- Negotiating with creditors to get charge-offs removed at a lower cost to you
While there are plenty of credit repair companies, finding one with a great reputation is critical. Unfortunately, many bad companies are in the credit repair industry. Take the time to research a business before signing up for its services.
What to Do if You Can’t Remove a Charge-Off From Your Credit Report
It’s not always possible to remove a charge-off from your credit report. If you can’t remove the charge-off, all you can do is wait and try to rebuild your credit using other strategies.
Keep in mind that It will take up to seven years for your charge-off to leave your credit report.
Ways to Rebuild Your Credit After a Charge-Off
While you might not be able to remove the charge-off, you can focus on improving your credit score in other ways. Here’s a look at some of the top ways to rebuild your score after a charge-off appears on your credit report.
Pay Your Bills on Time
Payment history is the single most crucial factor in your FICO score. In fact, payment history accounts for 35% of your FICO score. The best thing you can do for your credit score is to make on-time payments a priority.
Try to pay all of your bills on time. While that’s easier said than done, a robust emergency fund can help you stay on top of your bills, even when unexpected expenses pop up.
If you might miss a payment, try to communicate the problem with your lender in advance. Depending on the situation, the lender may offer a temporary extension to help you avoid a recorded late payment.
Work on Your Credit Utilization
Your credit utilization ratio measures the amount of credit you use against the amount of credit you have available.
For example, let’s say you have a credit card limit of $10,000. If you currently have a $3,000 balance, your credit utilization ratio is 30%.
A lower credit utilization ratio can benefit your score. Many experts suggest keeping your credit utilization ratio below 30%.
Use Secured Credit Cards
A secured credit card requires an upfront deposit. Typically, your deposit represents your credit limit. If you don’t pay your credit card bills on time, the secured card issuer can claim your deposit.
The upfront deposit removes some risk for the card issuer. Consequently, getting approved for a secured credit card is often easier than getting an unsecured credit card.
As you use your secured credit card, the issuer will report your payments to the credit bureaus. You’ll likely see your credit score rise if you consistently make on-time payments.
However, a secured credit card can hurt your credit score if you miss payments.
In many cases, secured credit cards are viewed as a starting point when you are trying to improve your credit. After you’ve built some level of creditworthiness, the goal is to graduate to unsecured credit cards.
Try a Credit Builder Loan
A credit builder loan is a unique loan product. You won’t receive any funds upfront when you take out a credit builder loan. Instead, you’ll start making monthly payments right away.
As you make your monthly payments, the lender will report your activity to the credit bureaus. Each month, a portion of your payment will get put into an earmarked savings account. At the end of the loan term, you’ll get access to the savings.
A credit builder loan offers the chance to build savings and credit simultaneously. However, it is possible to hurt your credit score if you don’t make on-time payments.
One credit builder loan option is SeedFi, which can help you get started without a hard credit check.
Use Credit Builder Apps
While credit builder apps may include loans or secured credit cards, there are also unique options like debit cards and using subscriptions to build credit.
For example, Extra offers a debit card that spends the money in your bank account and reports your payments to the credit bureaus. It even offers a subscription where you can earn rewards points to spend in the Extra store.
Another option is Grow Credit, which lets you build credit via subscriptions. You add your subscriptions to Grow Credit, pay for them using the platform’s Mastercard and watch your score improve as your payment history is reported to the credit bureaus.
Become an Authorized User
Consider asking to become an authorized user on a family member’s credit card if you can’t get approved for a credit product on your own. As an authorized user, you can reap the rewards of the credit history tied to that credit card.
If the primary cardholder has a track record of on-time payments, becoming an authorized user can significantly boost your credit score. Depending on the situation, the primary cardholder may or may not give you a physical credit card.
The downside of this strategy is that your credit score can suffer if the primary cardholder misses a payment. Also, if you make a mistake with this credit card, your friend’s credit score could suffer.
Consider Unsecured Credit Cards
When you think of credit cards, you likely think of unsecured credit cards. With an unsecured credit card, the cardholder doesn’t have to put down a deposit to get started. Instead, they can spend up to the spending limit set by the card issuer.
While getting approved for an unsecured credit card is more challenging, the lack of a deposit makes these cards attractive. On-time payments to your credit card can help you build credit.
If you move forward with an unsecured credit card, it’s important to be vigilant about your spending and monthly payments.
Most unsecured credit cards come with high APRs. You can avoid paying interest on your credit card purchases by paying off your balance in full each month.
If you have a balance on your credit card, the high APRs can cause how much you owe to grow quickly. Credit card debt is something to avoid if possible.
It’s likely best to not use a credit card if you aren’t confident you can spend responsibly. Unfortunately, it’s easy to slide into a mountain of credit card debt that serves as a drain on your finances for years to come.
Frequently Asked Questions
Here are some of the most common questions people have about how to remove a charge-off without paying.
A charge-off will have a negative impact on your credit score. The best way to avoid the harmful effects is to avoid a charge-off in the first place. If possible, try to make on-time payments on your debts each month.
Be prepared for your credit score to suffer if you cannot pay your debt on time. Fortunately, it might be possible to remove the charge-off by negotiating with the creditor or working with a reputable credit repair service.
Adding positive information to your credit report can increase your credit score as you move forward. A few strategies include paying your bills on time, keeping your credit utilization ratio low, trying a credit builder loan or using a credit builder app.