A charge-off shows up on your credit report if a creditor has given up on collecting a debt from you and has closed your account. This can damage your credit, and it doesn’t free you from paying that debt. To get back on the right track and start building your credit back up, you will need to pay this charge-off as soon as possible. In this article, we’ll show you a step-by-step process to pay a charge-off so you can handle the debt.
1. Determine if the charge-off is legitimate
First, determine if the charge-off is legitimate by looking at your credit report. The credit bureau may have made an error, such as mixing you up with someone else with a similar name or failing to remove a charge-off after seven years.
If the charge-off is not supposed to be there, open a dispute with the credit bureau and notify the creditor of the dispute. The credit bureau will then remove it if you can show them why it shouldn’t be on your credit report.
2. Contact the debt owner to draw up a payment agreement
If the charge-off is legitimate, find out who owns it — whether it’s the original creditor or a collections agency — and contact them to handle the payment details. You can only negotiate with the current debt owner, so if the lender sold it to a collections agency, ask the bank who that is and contact them.
You can either agree to pay off all the debt if you can afford it, or try to negotiate a settlement amount. The creditor will likely agree to pay less than the amount you owe since they’d rather get some of their money than nothing at all.
Offering 25% of the total amount is a good place to start if the amount is fairly large. The debt owner will probably want more, but this gives you some negotiating room and can help you minimize the amount you pay while eventually pleasing the creditor.
3. Get the agreement in writing
When you and the creditor reach an agreement, you need to get all the details in writing. A written agreement should show the settled amount and state that you paid it and don’t owe any more money, that collections activities will cease, and that the credit bureaus will change the charge-off account balance to $0 on your credit report. Having this all in writing protects you and prevents any confusion.
4. Pay the charge-off
Finally, pay the settlement amount to the debt owner and have them send you the written agreement you worked out. You should no longer have a charge-off balance on your report once the credit bureaus are updated.
The bottom line
Having a charge-off listed on your credit report can be stressful, but fortunately, they may not be difficult to take care of. First, make sure the charge-off is legitimate. If it’s an error, dispute it with the credit bureau to get it removed. If the charge-off is legitimate, find out who owns the debt and contact them to negotiate a settlement amount, if the debt is large enough. Once you arrive at an agreement, get it all in writing and pay the charge-off. Following these steps will help you knock that charge-off off your report and begin rebuilding your credit.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.