Can I Remove an Old Charge-Off Now That It’s Been Settled?

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Dear Experian,

The bank charged off my second mortgage loan in 2015. It was placed with an attorney for collection about three months later. I paid a settlement on that loan in July 2019. I was recently denied a mortgage loan and I was told by the loan agent that I was denied because the charge-off was less than four years old. However, it was the payoff that was listed in 2019. The original charge-off was in 2015. Can I have this paid charge-off removed from my report since the original missed payments were in 2015?

- CHM

Dear CHM,

Delinquencies remain on your credit history for seven years, even after a loan has been settled or paid in full. If your mortgage account was charged off and then settled, the account will remain on your credit report for seven years from the original delinquency date, which is the date the account first became delinquent and was not brought current. Therefore, if your account was written off in 2015, it will remain on your report until 2022. The date the charge-off was settled will not change when it is removed.

Settling an Account vs. Paying It in Full

Although the balance is brought to zero, settling an account instead of paying it in full is considered negative because the creditor agreed to accept less than what they were owed. Even if all your payments had been made on time leading up to it, settling an account is likely to hurt your credit scores. Still, settling an account is always better than not paying a debt at all. Many lenders will require that any outstanding debts are paid or settled before they will consider approving you for a new loan.

How Can I Improve My Credit After Defaulting on a Loan?

A charge-off is considered derogatory, so it can take time for your credit to recover once it occurs. The first step to improving your credit scores after a serious delinquency is to bring current any past-due accounts. Next, you'll want to:

  • Make sure all your payments are on time going forward. Because your payment history is the most important factor in your credit scores, even one late payment can have a substantial impact. Setting up automatic bill payments can help you avoid missing a due date in the future. If you are worried you won't be able to make a payment on time, always contact the lender in advance to discuss your options.
  • Keep credit card balances low. Your utilization rate, or balance-to-limit ratio, is another key factor in credit scores. This is calculated by taking the total of all your credit card account balances and dividing that number by the total of all your credit limits. The lower your utilization rate, the better for your scores. Ideally, you should pay your credit cards in full each month, if possible, to help your scores and avoid interest charges.

In time, lenders and credit scoring models will see that you are managing your credit responsibly, and your credit scores will begin to reflect that. Each lender still maintains their own criteria for approving applications, however. In your case, it sounds like your lender is concerned that the charged-off account still had an outstanding balance within the past four years. Some lenders may require that a certain amount of time has passed since an account was past due before they are willing to extend credit.

If you've been declined for a loan and want to know how to begin improving your creditworthiness, consider ordering a free credit score from Experian. You will receive a list of the risk factors that are currently impacting you the most. While you may not be able to remove old delinquencies any sooner, improving on other risk factors can help you increase your credit scores in the meantime.

Thanks for asking.

Jennifer White, Consumer Education Specialist

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