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Credit card problems have worsened nationwide. Not only are 20% of cardholders currently at maximumbut Credit card defaults are on the riseBut perhaps even more worrisome is that credit card charge-offs are also increasing, according to Federal Reserve data, with charge-offs rising from 4.16% in the first quarter of this year to 4.38% in the second quarter, a 12.5-year high. A charge-off occurs when a creditor determines that a debt is unlikely to be collected and writes it off, which typically happens after a debt has been delinquent for 180 days or more.
The increase in bad debt losses can be attributed to various economic factors, Inflation plays an important role. Although inflation has slowed in the past four months, it has significantly increased the cost of living over the past two years. Many cardholders have found themselves strapped for cash, making it difficult to track their credit card payments. This, coupled with other issues — like the average credit card rate climbing to almost 23% — led to an increase in the number of accounts written off as uncollectible.
The impact of a charge-off on your credit report is significant, as it can seriously damage your credit. It also signals to potential lenders that you have not repaid a debt as agreed, making you appear as a high-risk borrower. Given the far-reaching consequences, it is essential to understand how to handle 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 steps you can take to try to remove a charge-off (or lessen its impact on your credit):
Confirm the accuracy of the information
The first and most crucial step in processing a delisting is to verify that the information reported is accurate. Start by obtaining copies of your credit reports of the three major credit bureaus: Equifax, Experian, and TransUnion. You are entitled to one free credit report from each bureau each year via AnnualCreditReport.com.
Once you have your reportsReview the write-off carefully. Check the following details:
- Account number
- Date of last payment
- Amount of radiation
- Date the account was deregistered
If you notice any discrepancies, no matter how small, note them. Inaccuracies in reports can be grounds for disputes and may result in the possible removal of the charge-off from your credit report.
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Dispute any erroneous claims
If you have identified inaccuracies in the information on the deregistration, you have the right to dispute the listing with the credit bureaus. The Fair Credit Reporting Act (FCRA) gives you the opportunity to dispute any information you believe is 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 radiation be removed or corrected
Credit reporting agencies are required to investigate your application within 30 days (or 45 days in some cases) and must remove the entry if they cannot verify its accuracy. If the deregistration is verified as accurate, it will remain on your report, but you have exercised your right to verify that the information is correct.
Repay the debt or negotiate a settlement
If the write-off is correct, your best option is to settle the underlying debt. There are two main approaches:
Pay the debt in full
If you can afford it, repay the written off account can help improve your creditworthiness. While this won’t immediately remove the charge-off from your report, it will update the status to “paid charge-off,” which looks more favorable to potential creditors. Additionally, some newer credit scoring models, like FICO 9, ignore paid collection accounts, which can help your score recover faster.
Negotiate a settlement
If payment of the full amount is not possible, you may want to consider negotiate a settlement with the creditor or collection agency. This involves agreeing to pay a portion of the debt in exchange for settling the account. Although it varies, the average settlement may reduce what you owe by 30% to 50%. The remaining part of the debt is then “forgiven”, which means that it is written off by the creditor.
You can negotiate a credit card debt settlement on your own or seek help from a debt reduction companyThese companies specialize in negotiating with creditors to reduce the amount you owe, and using one can increase the chances of a successful settlement because their experts are skilled in this type of negotiation.
Just make sure you do your research thoroughly before hiring a debt relief company. Not only can the fees be substantial (between 15% and 25% of the registered debt on average), but the use of their services may have additional impacts on your credit.
The essentials
Dealing with a credit card charge-off can be a difficult and often frustrating process. However, by taking proactive steps to resolve the issue, you can mitigate its impact and work toward restoring your credit. Whether it’s disputing inaccuracies, negotiating with creditors, or utilizing the services a debt relief company can offer, there are multiple paths to recovery.
