You’re about to learn how to dispute a charge off from your credit report. Before I show you, let’s define what a charge off means, how a charge off affects credit scores, and then I’ll show you the best ways to dispute a charge off from your credit report.
What Does Charge Off Mean?
If you miss several payments in a row on a credit card or loan, then the lender may decide your past due debt is noncollectable. At that point they may write off the loss for accounting purposes. This is referred to as “charging off” the debt.
Charging off the debt doesn’t mean you’re off the hook. You’re still liable for the debt.
The lender will then usually sell your debt to a third party collection agency. Though rare, they are also within their rights to sue you to collect.
If the lender does charge off your debt, they may also send you a 1099-c, which means you will have to pay taxes on the past due amount.
How Does A Charge Off Affect Your Credit Score?
The whole purpose of a credit score is to predict how likely you are to default 90 days or more on a credit obligation. The lower your score, the more likely you are to default.
Since lenders need to see a return on their investment, then a low score means you’ll have to pay more interest to offset their risk.
To put it another way, let’s say 5 people were applying for a credit card. If they all have 720-750 credit scores, then their odds of defaulting is almost none. They can pay a lower rate because the bank has little risk of any of them defaulting.
On the other hand, if all 5 applicants have 580 scores, then there is a chance one of them may not pay. That means they all have to pay more to offset the money the bank would lose on the one who didn’t pay, plus still make a profit.
A Charge Off Is A “Worst Case” Scenario For Lender.
Taking a loss is the last thing and lender wants to do.
Statistically speaking, someone who has gone without paying for 90-days or more in the past is 80% more likely to do it again. In an effort to warn other lenders of the increased risk, the charge off on the credit report lowers that individual’s score.
The first 2 years have the most impact on your scores, but they will bounce back with time. After 7 years of inactivity the charge off will come off by itself.
After 7 years of inactivity, the charge off will come off your credit report by itself.
Notice I said “inactivity”. If you pay the charge off, then you are updating the date of last activity. Paying an old charge off will not only not increase your score, but it will most likely crush it.
Remember, it’s not really the past due balance that’s hurting your score. It's the “charge off” status that’s doing most of the damage.
That's why learning how to dispute a charge off is so important. If you're overpaying for credit and loans, then you'll never be able to save for your future.
Will Lenders Delete A Charge Off If It’s Paid?
Before I answer, let me say that the right thing to do is to pay it. But if you are going to pay it, then pay it fast.
Get on the phone with your lender as soon as you realize you can’t catch up on the payments and work out some type of payment arrangement. Do this before the debt is charged off and the lender sends it to a collection agency.
If you can’t workout a payment arrangement within the first 2 years, then you should know that paying it will only hurt your credit scores.
It’s still morally and ethically the right thing to do, but from a credit score perspective, you need to be aware of the consequences so you can make an educated decision.
It’s the presence of the charge off on your credit report that is mostly hurting your scores.
Let me repeat… It’s the presence of the charge off on your credit report that is mostly hurting your scores. The balance has minimal effect in comparison.
And while its technically possible to negotiate with a creditor to delete your charge off in exchange for payment; I’ve never seen it happen.
Can I Dispute A Charge Off Online?
Technically, yes, but to dispute a charge off online is probably the worst mistake you could make.
Without going too deep into the mechanics of how CRAs process written credit disputes, let’s just get to the important points.
The CRAs scan and send your written disputes to the Philippines, Costa Rica, and Jamaica, where employees change your dispute request into a 2 digit code. That 2 digit code is then sent to the data furnisher through a system called e-Oscar for the creditor to investigate.
Because there are humans involved, there is the possibility of human error. Human error leaves the door open for follow up investigations since your dispute could have been misinterpreted.
When you enter your dispute online, you’re doing their job for them...
When you enter your dispute online, you’re doing their job for them and selecting the 2 digit code. You not only save the CRAs time and money, but you’re effectively removing the human error from your dispute.
Since the CRAs are only obligated to perform one investigation per account every 12 months unless you provide new data, then your chances of success with any follow up disputes drops significantly.
Since your success rate increases with each investigation triggered, you’re basically making it impossible to remove anything from your credit report with an online dispute.
Don’t dispute a charge off online if you want to be successful.
How to Dispute A Charge Off From Your Credit Report
According to the Fair Credit Reporting Act (FCRA), the only items that may appear on your credit are those that are verifiable, accurate, and timely.
What that means is if the creditor can’t prove it, if they report incomplete/incorrect data, or if it’s older than 7 years, then they have to delete it.
The problem is most people don’t take the time, or don’t know how, to audit their credit report for accuracy.
And that makes sense, because unless you’re working alongside attorneys who specialize in FCRA violations, then how would you know the legal process for how to dispute a charge off?
So I'll give you what you need to know when planning how to dispute a charge off by providing you with the 4 most common FCRA violations we've found:
Charged Off Account Transferred With Balance Reporting
This occurs when a creditor charges off the debt, then transfers or sells the account to a 3rd party collection agency and they both show a balance past due. You can document this violation by highlighting the creditor and collection agency accounts in the CRA response and underlining the balance due on each.
Charged Off Account With Balance Reporting After 1099-c Issued
This occurs when a lender sends you a 1099-c after charging off your debt while still reporting a balance past due. The 1099-c means you have to pay taxes on the income. The creditor can’t try to collect a debt they’ve written off and hit you for the taxes. You will need a copy of the 1099-c as well as the CRA response showing the past due balance.
Account in Charged Off Status, But Still Reporting Current Late Payments
If you see late payments entered after a lender has charged off a past due balance, then this would be a FCRA violation. You can document this violation by highlighting the accounts on the CRA response and circling the payment history.
Inaccurate Charge Off Dates
If a creditor reports, then it must be accurate. If your account was charged off in April, but some of the CRAs are reporting the charge off date is May, then their error is causing the account to negatively impact your scores for longer than it should. You can document this violation by highlighting the accounts on the CRA response and circling the charge off date.
The Step-By-Step Process For How to Dispute A Charge Off
The first step in learning how to dispute a charge off is gathering information.
Step 1: You’ll need to get a recent credit report from all 3 CRAs (Credit Reporting Agencies): TransUnion, Experian, and Equifax.
Each CRA has their own process for handling the data your creditors send them, so your information can be very different from one CRA to another.
You can get free reports from each of the 3 CRAs from www.annualcreditreport.com, but I wouldn’t recommend them. They are much harder to read and its harder to find violations when you’re flipping from one report to the next.
I recommend *identityiqreport.com. They're only $1 for all 3 bureaus for a 7 day trial, then just $19.95 a month thereafter. You’ll need to check your credit report regularly. identityiqreport.com lines up the CRAs side-by-side for each account. This makes violations easy to spot.
Step 2 - Highlight all the accounts that have a charge off status.
Step 3 - Send your initial CRA dispute challenging the accuracy of the charged off account. Be sure to collect and save the CRA’s responses.
Step 4 - Send a follow up dispute to the CRAs and request a detailed description of their Method of Verification. What you’re asking is for the CRA to explain what steps they took to verify this account was accurate.
Be sure to collect and save the CRA’s responses.
Step 5 - Now you’ll need to go through all of the CRA’s responses. You’re looking for any of the FCRA violations I detailed for you earlier.
Depending on the violation you find, you’ll now want to send a follow up re-investigation request to the CRAs requesting a deletion due to the specific FCRA violation you found.
Send your dispute along with the recommended proof I detailed.
I would recommend sending this one by certified mail and saving the proof of delivery.
As always, save the CRA responses in a safe place.
Step 6 - If the CRAs fail to correct the issue, then contact an attorney who specializes in FCRA violations. You will need to provide them will all the evidence you’ve collected.
How to Dispute A Charge Off If I Don’t Find Any Violations?
If you don’t find any violations, then your last resort is to request your payment history from your lender.
Review their statements against your bank statements. If they made any clerical issues, then you have grounds for disputing.
This happens more often than you would think.
You can also recheck your reports after you request the lender's documentation. Sometimes they inadvertently update your account and cause an FCRA violation.
If you still don’t find any violations or inaccuracies, then stop disputing. The account is accurate, verifiable, and timely. It cannot be legally removed.
Just because you know how to dispute a charge off, it doesn't mean you're going to win every time.
Are YOUR Rights Being Violated?
Now that you know how to dispute a charge off from your credit report, you may be thinking that this sounds like a lot of tedious boring work.
If you don’t want to be bothered with this process, or you don’t want to take any chances of messing up your one opportunity to clean up your credit fast, then contact US Credit Advocate for a free consultation.
There is no cost or obligation to buy anything.
We'll show you the possible violations, explain how to dispute credit report errors, and even connect you with one of our trusted legal partners if we believe you have a case.
Our legal partners work 100% on contingency. They only get paid if they win a settlement in your favor.