Credit Repair
and Credit Rebuilding Information
Introduction
Bad credit stops people from getting mortgages,
car loans and credit cards. When credit can be obtained those with poor credit
scores pay higher rates and fees. Most people deal with their credit report
issues by ignoring them. Fortunately, fears about repairing one’s bad credit
prove largely unfounded and lack of knowledge concerns easily resolve
themselves with free credit repair information. By taking an aggressive
approach, even folks emerging from bankruptcy can find their credit repaired
back up to reasonable levels within a year or two. The following article outlines how to solve the underlying causes
of bad credit, repair of a bad credit report and rebuilding credit.
Resolve
outstanding issues
Before beginning a full-scale attack on one’s bad credit and repair of a negative credit report the person must first address each of the negative items and resolve them. Resolution may take many forms, which we will explore here. From a credit repair standpoint the significant starting point is “closing the book” on each of the bad credit items on the credit report. A horrible but old and closed bad credit item most often gets viewed better than an open current bad credit item. Believe it or not, a viable resolution method turns out to be a Chapter 7 bankruptcy. In this context the bankruptcy paves the way to the first step of credit repair by putting an end to the old bad credit items. While bankruptcy adds it’s own significantly terrible credit reporting item, bankruptcy by definition will be “resolved” when the case ends. In the early stages of bad a credit incident the easiest and best solution can be catching up on a payment. As with many of the circumstances we will discuss the prior late payment will still appear on the credit report. The important point being discussed in this section is resolving the initial issue. Catching up on a past due payment constitutes resolution. When payments continue delinquent for a long enough time catching up may become out of reach. Negotiating a payment plan with the creditor either directly or with the aid of a credit counselor constitutes resolution of the item for credit repair purposes. Settlement of a debt, even at a fraction of the original amount due, means resolution.
Eventually banks charge off unpaid debt balances. A
charge off does not mean that a forgiveness of debt occurs, it only indicates
the creditor has made an accounting notation that they do not believe that the
debt will ever be repaid. A charge off represents a significant black mark on
one’s credit report. Charge offs can be noted in several ways. A charge off
which is unresolved appears as such on a credit report. Charge offs can be
resolved the same as any other debt by either paying them in full, paying them
at a discount, making a payment over time or filing a bankruptcy. Aside from the
obvious downside of a charge off in that it paints the debtor in a very poor
light, an open unpaid charge off indicates to a potential creditor reading your
report, not only was there financial trouble at one time but further more that
the debtor has not made any effort to deal with the problems. A bankruptcy is certainly not a favorite
resolution by the creditors but it shows that the debtors have recognized there
is a problem and has taken some action. In terms of a credit report a
bankruptcy is not a clean slate. A bankruptcy remains a nasty item on one’s
credit report as long as ten years. On the positive side, however, the
bankruptcy is a clear time or “line in the sand”, from which the debtor can
begin to rebuild. With open unresolved charge offs there is no such point in
time where rebuilding can start. Open unresolved charge offs remaining glaring
poor credit cavities on ones credit report.
To convert this concept into terminology in the medical or financial industry, the first step is to “stop the bleeding”. Many people look at their financial picture and think they must cure the entire situation in one huge step. Most times this is neither something an individual with limited resources has the ability to do nor something anyone with unlimited resources could achieve. The debt and credit resolution process takes several steps. One does not go to a hospital with a gaping wound and expect to walk out perfectly cured the same evening. In the first step the doctor stops the bleeding then, as we will see, there must be time for healing of the wound itself followed by an inevitable scar and perhaps in time fading of the scar itself or cosmetic surgery.
Base line evaluation
With the negative events resolved and the worst over
with, damage assessment comes next. In order to recover from bad credit and
reclaim one’s good credit a careful evaluation of the credit must take place.
In the United States, three major credit-reporting agencies control the credit
reporting business. Each agency maintains its own records on each individual.
The most comprehensive method of reviewing one’s credit therefore requires
reviewing the reports from all three bureaus, which is often referred to as a
tri-merge report. The debtor can order a tri-merge report on-line from any of
the major credit bureaus such as Experian or Equifax at a cost of approximately $30.00. For a smaller
investment of under $10.00 an individual can view report of a single credit
bureau. Throughout the country each zip code has one of the credit reporting
agencies designated as the “preferred agency”. It makes sense then if you only
plan to obtain a single credit report you should get it from the preferred
agency for your area code. I’ve prepared a table of the zip codes
throughout the country and the corresponding preferred agency as well as a
listing of which states mandate customers may view their credit reports
annually for free. Links to each of the credit bureaus can be found on the state table site. To better understand how good or bad your credit has become
and communicate the situation with potential lenders, consultants or attorneys
obtaining your numerical credit scores may be helpful even if it costs a bit
more.
Erroneous items
Many of those unfamiliar with credit reports share a
mistaken belief that credit reports display a near perfect accuracy. In reality
errors on a credit report occur with alarming frequency. Reporting agencies
rarely verify or cross check information unless they have a specific reason to
do so. Therefore it becomes the obligation of each individual to verify the
accuracy of their own credit report and begin the process of correcting
inaccuracies of the credit report. Inaccuracies on a credit report may take
several forms including reporting of credit information on items which were
never associated with the individual in question, items which may be related to
an individual but are reported improperly or items which may be attributed to
the individual but should no longer be reported on a credit report. Important
personal items are often miss-reported as well including ones address, social
security number and employment history. Everyone should check these personal
items as well when reviewing the accuracy of the credit report. Federal law
sets the limit on reporting items of negative credit at 7 years except the case
of Chapter 7 bankruptcy where the limit extends to 10 years.
Credit Repair
If one discovers inaccuracies on their credit report responsibility
lies with the individual to begin the corrections process. Letters must be
written explaining exactly what the problem is and the remedy they feel
warranted. Especially when dealing with inaccuracies individuals must remember
that each credit reporting agency maintains its own database of information.
Therefore one agency might report an item properly while others report it
improperly and vise versa. Furthermore,
if a common inaccuracy exists with multiple reporting agencies the repair process
must take place with each agency reporting the item inaccurately individually.
In many cases this means to remove an item that has made its way onto each
bureaus agency report, an individual must write three sets of letters and
follow the process through with all three different agencies in order to be
sure an item comes off from the reports. Once notified of a problem an agency
will contact the creditor or reporter of the item in question and seek a
response regarding the accuracy of the item. Under the Federal Fair Credit
Reporting Act if the agencies do not receive a reasonable proper response
within 30 days they are obligated to follow your directives on proper treatment
of the item. Should a proper response be
received the bureau may well request more information on why you believe your
position be the correct one. Many people advocate dealing with only one item
per correspondence. To extend this out given earlier facts that each item must
be dealt with individually with each agency, a hypothetical result for someone
with ten erroneous items could mean initiating 30 sets of correspondence to
correct the problem. Once you find you have completed this task follow up once
again or check the report again. Just because a letter has been written and a
creditor has not responded within a given time frame does not mean that the
agency will remove the report without further follow up and an additional
correspondence. On the other hand keep in mind changes may take a month or more
to appear on a report. While the process for proper credit reporting is in
place, assuring accuracy of your own credit report rests with you.
Improving ones credit score is one of the few areas
of life where doing nothing can be tremendously productive. Once the items
causing negative impact on the credit report have ended, the simple passing of
time does wonders for one’s credit score. While the advantage of improving your
score with the passing of time comes in the form of non-existent effort, the
disadvantage comes in that time must take its own course. Even those with the
best of credit cannot buy more time or speed the passing of time. Generally the date used to trigger the
passing of time in this context starts with the date of the last activity of
the account. Interpretation and misuse of this rule accounts for many reporting
errors. For example if a person last made a payment on a charge card in 1995
and in 1999 a new entity buys the account and begins to report it the new
entity the credit reporting bureaus may treat the initial reporting as the date
of the new entity. But in reality the date of the last activity of the debtor’s
point of view came in 1995 with the last payment. “Last activity” for purposes
of credit reporting means the debtor’s last activity, otherwise by re-selling
accounts or re-generating some new phantom activity the creditors reporting can
be extended in perpetuity. To maintain the accuracy of records that should be
dropped from account through passage of time, usually seven years as I referred
to earlier, individuals should know the exact date of the last activity and
have records for proof.
Credit Rebuilding
I cannot stress enough the importance of staying out
of trouble as a credit-rebuilding tool. Even doing nothing can help a bad
credit report, but repeating poor credit habits can make things much worse.
Creditors can be somewhat understanding of a bad credit incident, if corrected.
This can be particularly true when the bad credit originated with problems
outside of the debtors control such as emergency medical bills. Repeated bad
credit behavior indicates a problem with deeper roots and looks to be a
stronger indication that future credit worthiness looks shaky. If you want your
credit to improve, be perfect with your new credit, as well as old credit where
accounts remain open.
To accelerate the rebuilding process try to have at
least three active credit lines open, and be perfect with them. Car loans or
mortgages count if you still make payments, as well as old credit cards if they
can still be used. If you need to obtain new credit store cards or gas cards
can be easier to obtain than major credit cards. If even those fall beyond
reach any one can be accepted for secured credit cards. Make sure when taking a
new credit for rebuilding purposes that the creditor reports to the major
credit agencies. Not all creditors submit information to the credit bureaus,
and almost no debit card or check card issuers do, even ones with a MasterCard
or Visa logo. Use the credit you have obtained and make your payments on time
(did I mention I can’t stress this enough). On time means never being 30 days
late. At fifteen days you may pay a late fee, but late items must hit 30 days
overdue before they will be reported. Using credit does not mean abusing it,
you need not run the card up to its limit. On the other hand, leaving the card
in your wallet will not help rebuild your credit as much as positive usage. A service I have seen claims they will report your rent payments to the credit reporting agencies. Potentially this could accelarate credit score rebuilding.
Scams, Fraud and Improper
Credit Repair
One does not have to look far to discover companies
claiming they can repair your credit for you.
Some of these companies will legitimately help to repair erroneous items
on your report others fall into the category of con artists and crooks. This
evil group starts off with the out right thieves - companies, which offer the
world, take your money and do nothing. Avoid these by checking references
including organizations such as the Better Business Bureau when applicable,
question how long they have been in business and pay attention to what they’re
telling you. If their claims sound to good to be true you may wish to be on the
defensive. When possible attempt to verify answers they have given you with
independent sources. Ask how much time credit repair takes. No one telling you
credit repair happens instantly should be trusted.
Some organizations claim they will issue you a new
social security number or create a completely new credit profile for you.
Organizations of this type fall into one or two categories, those who are scam
artists and liars and those who are operating illegally. Even if an entity some
how could create a new credit profile for you such an action would be
completely improper under the law. I personally recommend that any
organizations making claims of new social security numbers or new credit
profiles be avoided. Some credit repairs organizations do follow the rules and
understand the system. Even with those who are attacking items on a credit
report using the proper procedures can sometimes go too far. Either at the
request of the debtor or the suggestion of the credit repair agency some
companies will wage a war with the credit bureaus concerning legitimate items
in the hopes that the creditor either ignores the correspondence or gives up on
the paperwork required with the result that legitimate bad credit items end up
removed. I personally would advise anyone considering such an endeavor that
attempting to remove proper items can constitute fraud and avoid any such
actions.
Conclusion
No one needs to allow a bad
credit report to hang over their head. Some people may feel comfortable working
with credit report issues on their own while others will need help from books,
web sites, professionals or you may wish to try our own free credit repair and credit rebuilding step-by-step guide. Only
ignoring the situation or falling victim to a scam would be bad approaches.
Individuals must decide based on their own knowledge and skills what works best
for them. In any case, within a year or two of concentrated effort, even the
worst bad credit can improve to very high levels. In the mean time, many bad
credit loan options exist. Bad credit
need not put your entire life on hold in either the short run or the long run.
CREDIT REPAIR AND REBUIDING SERVICES
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The most recent update of this page occured on 10/14/04.