How to get rid of a credit card charge-off on your credit report

Credit card issues have been compounding nationwide. Not only are 20% of cardholders currently maxed out, but credit card delinquencies are rising, too. But perhaps even more troubling is that credit card charge-offs are also climbing, according to data from the Federal Reserve, with charge-offs increasing from 4.16% in Q1 of this year to 4.38% in Q2 — a 12.5-year high. A charge-off occurs when a creditor determines that a debt is unlikely to be collected on and writes it off as a loss, which typically happens after an has been delinquent for 180 days or more. 

The rise in charge-offs can be attributed to a variety of economic factors, with inflation playing a significant role. While inflation has been cooling over the last four months, it drove up the cost of living significantly over the last couple of years. In turn, many cardholders have found themselves stretched thin financially, making it tough to keep up with their credit card payments. That, coupled with other issues — like the average credit card rate climbing to nearly 23% — has led to an uptick in accounts being written off as uncollectible.

The impact of having a charge-off on your credit report is significant, as it can severely damage your credit. It also signals to potential lenders that you've failed to repay a debt as agreed, making you appear as a high-risk borrower. Given the far-reaching consequences, it's crucial to understand how to address and potentially remove a charge-off from your credit report.

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How to get rid of a credit card charge-off on your credit report

Here are the steps you can take to try and remove a charge-off (or mitigate the impact it has on your credit):

Confirm the accuracy of the information

The first and most crucial step in addressing a charge-off is to verify that the information reported is accurate. Start by obtaining copies of your credit reports from all three major credit bureaus: Equifax, Experian and TransUnion. You're entitled to one free credit report from each bureau annually through AnnualCreditReport.com.

Once you have your reports, carefully review the charge-off entry. Check the following details:

• Account number
• Date of last payment
• Amount of the charge-off
• Date the account was charged off

If you spot any discrepancies, no matter how small, make a note of them. Inaccuracies in reporting can be grounds for dispute and potential removal of the charge-off from your credit report.

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Dispute any incorrect debts

If you've identified any inaccuracies in the charge-off information, you have the right to dispute the entry with the credit bureaus. The Fair Credit Reporting Act (FCRA) provides you with the ability to challenge any information you believe to be incorrect, incomplete or unverifiable.

To initiate a dispute:

• Write a dispute letter to each credit bureau reporting the inaccurate information
• Clearly explain the error and provide any supporting documentation
• Request that the charge-off be removed or corrected

The credit bureaus are required to investigate your claim within 30 days (or 45 days in some cases) and must remove the entry if they cannot verify its accuracy. If the charge-off is verified as accurate, it will remain on your report, but you've exercised your right to ensure the information is correct.

Pay off the debt or negotiate a settlement

If the charge-off is accurate, your next best option is to address the underlying debt. There are two primary approaches:

Pay the debt in full 

If you have the means, paying off the charged-off account can help improve your credit standing. While it won't immediately remove the charge-off from your report, it will update the status to "paid charge-off," which looks better to potential creditors. Additionally, some newer credit scoring models, like FICO 9, ignore paid collection accounts, which can help your score recover more quickly.

Negotiate a settlement

If paying the full amount isn't feasible, you might consider negotiating a settlement with the creditor or collection agency. This involves agreeing to pay a portion of the debt in exchange for the account being considered settled. While it varies, the average settlement can reduce what you owe by 30% to 50%. The remaining portion of the debt is then "forgiven," meaning that it's written off by the creditor. 

You can negotiate a credit card debt settlement on your own or enlist the help of a debt relief company. These companies specialize in negotiating with creditors to reduce the amount you owe and using one may increase the odds of a successful settlement, as their experts are skilled in this type of negotiation. 

Just be sure to research thoroughly before engaging a debt relief company. Not only can the fees be substantial (between 15% to 25% of the enrolled debt on average), but using their services may have additional impacts on your credit.

The bottom line

Dealing with a credit card charge-off can be a challenging and often frustrating process. By taking proactive steps to address the issue, though, you can mitigate its impact and work toward rebuilding your credit. Whether through disputing inaccuracies, negotiating with creditors or utilizing the services a debt relief company can offer, there are multiple pathways to recovery.