Can Charge-Offs on Credit Reports Be Reopened?

Charge-offs on credit reports are a top reason for denial of new account applications, according to Steve Bucci of the Bankrate financial site. These negative entries can be reopened and paid, but they must be handled correctly or it will not improve a person's credit score. Ideally, the charge-offs should be completely erased so they no longer influence the credit records.

Definition

A charge-off is an accounting procedure done by a credit card company or other lender so the amount owed is no longer viewed as an asset, according to Bucci. The account status on the debtor's credit reports changes from delinquent to charged off, which is a much more negative entry. It looks bad to other creditors and reduces the consumer's FICO credit score.

Time Frame

Charge-offs usually show up on credit reports after six months of non-payment on an account. The entries are reported on TransUnion, Equifax and Experian credit reports for seven years from the date the accountholder stopped making payments. The debt is still collectible until the state statute of limitations expires, and the original creditor may recoup some of its money by selling the account to a collection agency for less than the actual value.

Procedure

A charge-off is reopened by contacting the creditor and offering a settlement. Bucci advises offering less than the original amount due. Creditors often accept a reduced amount because they were already resigned to not receiving any payment. Tell the creditor that it must agree to stop reporting the account to TransUnion, Experian and Equifax or that it must alter the status to "paid as agreed" as part of the settlement. Otherwise there will not be much improvement in the credit score because a paid charge-off still looks bad.

Considerations

Do not give any payment to the creditor until it sends a copy of the settlement agreement in writing, including its promise to change the credit report entries. The creditor has no incentive to follow through once it receives the money. The written agreement forces it to keep its part of the bargain. Bucci recommends checking credit reports to make sure the account is removed or the status has changed to "paid as agreed." Consumers can order free yearly reports from the three bureaus through annualcreditreport.com.

Misconceptions

Charge-offs do not always have to be reopened and paid to significantly improve credit reports. The negative impact goes down over the years for people who manage their current accounts properly with on-time payments and controlled balances. Creditors pay the most attention to activity within the previous two years, Bucci explains. Charge-offs that are five or six years old may not be worth paying since they will drop off the credit reports within a year or two with no action on the consumer's part.