Charge-offs have an extremely detrimental effect on your credit report. They are reflected there for 7 years and are viewed negatively by future lenders. Therefore, it is of the utmost importance to deal with them as quickly and efficiently as possible.
A charge off is essentially a lender recognizing that attempts to collect on a debt have been unsuccessful and thereby recording it as a loss. Companies do this for tax purposes; however, this does not mean that you are no longer obligated to repay the amount owed. Lenders can continue collection attempts even after this has happened.
If the notation is in fact an error, the appropriate course of action is to dispute the inaccurate information, in writing, with the reporting company, either Experian, TransUnion or Equifax. By law, these companies must investigate and remove the notation if it is not correct. It also must forward the documentation you provide to the lender who will, in turn, notify all three reporting agencies to correct the information in your file.
If the notation is in fact correct, the process for removal is more involved. It is not easy to get this mark removed from your report, but it is possible. The tactic generally believed to garner the most success is negotiation with the original debt agency. At best, the lender will change the status of the account to “Paid as Agreed,” but even less desirable notations, such as “Closed” or “Settled,” will not have as much of a negative impact.
The first step for removal is to contact the original account owner and determine the appropriate person with which to speak. It is imperative that this person actually have the authority to make decisions concerning your account. Once this person is determined, you are highly encouraged to put everything in writing. This is the only way to prove the negotiations are taking place and to verify any decisions or agreements that were made.
It is also important to remember to keep these negotiations professional. Their only interest is in collecting the debt and they do not care about your personal circumstances. As a result, they will respond more readily to business like reasoning then that of a personal nature.
It is tempting to just pay as soon as possible with the hope that the creditor will be more favorable to negotiations; however, this is highly discouraged. Once the account is paid, you lose all bargaining power. They have gotten what they want and have no incentive to negotiate or change the account status to a more desirable notation. The ultimate agreement needs to be a change in the account status in exchange for payment.
Further, this arrangement must be in writing. Ask for a document outlining the agreement that is written on company letterhead with the name and contact information of the person with which you spoke. Have this document in hand before making any payment.
Finally, once your settlement has been fulfilled, it is important for you to check your credit reports to ensure the status has been changed.