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Credit repair
Credit Repair is a general term often applied to the controversial practice of improving or rehabilitating one's financial reputation (creditworthiness) among creditors. To improve a credit rating damaged by poor credit habits, in the long run only one thing will work: changing those habits.
Why worry about your credit score? Having a good credit score will save you thousands of dollars in interest payments because a good credit score will help you qualify for lower interest rates when you borrow money. Having a low or bad credit score can hurt you when you try to buy a car, home, or rent an apartment.
The process of credit repair can be quite complex and time consuming and there are no simple answers. As a result of the complexities of credit repair an entire industry has been spawned. You can find both for-profit and not-for-profit organizations ready to assist individuals repair their credit – for a fee. Even though there have been many efforts by the government to oversee and regulate this industry there are still many predatory practices to be found.
If you are motivated you can repair your own credit. The first step is to get a copy of your credit report, reviewing the credit report for errors, omissions, and misleading information, and request corrections to such information by means of a formal dispute.
Making arrangements with the creditors to repay them is often one of the steps in improving one's credit habits. Creditors may accept slow payment schedules, as an alternative to writing off the debt. In some cases, creditors may accept a less-than-full repayment (pennies on the dollar). The important point here is that you must contact your creditors and come to an agreed upon plan to pay off the debt.
The worst thing you can do for your credit is to ignore a debt.
At the same time, reviving an old debt that is no longer collectible can actually do additional damage to one's credit reputation. It is best to be aware of the circumstances regarding the debt's collectability, statute of limitations, and legal and illegal collection practices, before contacting a creditor on a very old debt.
Another situation that can affect your credit rating is inaccurate or erroneous entries being reported to credit bureaus. Studies have found that up to 46% of individual credit reports contain erroneous entries that may impact one's credit rating. This can be handled by taking advantage of the protections provided in law and regulation, primarily the dispute process.
How to dispute inaccurate entries on your credit report.
To dispute an entry in your credit report because it contains erroneous, misleading, or outdated information, as provided by federal law, simply write a letter to the credit-reporting agency. As an example:
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Your Name
123 Your Street Address
Your City, ST 01234
Big Credit Bureau
Their Street Address
Some City, ST 56789
2/10/1999
Dear Credit Bureau,
This letter is a formal complaint that you are reporting inaccurate and incomplete credit information.
I am distressed that you have included the below information in my credit profile and have failed to maintain reasonable procedures in your operations to assure maximum possible accuracy in the credit reports you publish.
Credit reporting laws ensure that bureaus report only 100% accurate credit information. Every step must be taken to assure the information reported is completely accurate and correct.
The following information therefore needs to be re-investigated. I respectfully request to be provided proof of this alleged item, specifically the contract, note or other instrument bearing my signature. Failing that, the item must be deleted from the report as soon as possible: CREDITOR AGENCY, acct. 123-34567-ABC
The listed item is completely inaccurate and incomplete, and is a very serious error in reporting. Please delete this misleading information, and supply a corrected credit profile to all creditors who have received a copy within the last 6 months, or the last 2 years for employment purposes.
Additionally, please provide the name, address, and telephone number of each credit grantor or other subscriber.
Under federal law, you have 30 days to complete your re- investigation. Be advised that the description of the procedure used to determine the accuracy and completeness of the information is hereby requested as well, to be provided within 15 days of the completion of your re-investigation.
Sincerely,
your signature
Your Name
SSN# 123-45-6789
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Many companies offer fraudulent schemes for personal credit repair, offering to wipe out legitimate records and give a person a "clean slate". In many cases, these are either fraudulent scams or schemes, which may cause a person attempting to use them to violate more serious laws. Such schemes are primarily identified by unrealistic promises, such as the following:
- We will erase bankruptcies from your record.
- We can erase tax liens from your record.
- We can issue you a new Social Security number.
- We can clean up your credit in [any amount of time less than a 30-120 days].
If you do sign up for a credit restoration/repair service, you should look ask them the following important questions:
- Is there a monthly fee? If so, then there is no incentive for them to quickly and efficiently clean your file.
- Is there a lawyer or a legal department on staff? If not they are unable to deal with issues like tax liens, wage garnishments, and bankruptcies to the fullest extent.
- Is the name "credit counseling" in the name? Credit counseling firms are simply tools of the banks and creditors, and leave your credit report in worse shape than when you started.
- Is the company involved in "debt consolidation" at all? Debt consolidation may be worse than a bankruptcy for your credit report.
Legitimate approaches, which may correct erroneous, misleading, or outdated entries on a credit file, negotiate with creditors, and teach better debt habits, take months if not years to accomplish significant results.
Below are some tried and true steps to take if you want to repair your credit.
Pay your bills on time. This is always a good practice, and is especially critical that you make prompt payments close to the time you need a loan. That's because a late payment missed in the last few months is likely to lower your score much more than an isolated late payment five years ago.
Correct mistakes. Review your reports from all three credit bureaus for accuracy several months before applying for a loan.
Reduce your credit card balances. Generally its good to keep your balances at or below 30 percent of you credit limits.
Use a budget. It helps you plan where you will spend your money and how you will save some of it. Also having a budget will help you get ready to buy a home. When you are applying for a mortgage loan, the lender will ask you how much income you have and what your expenses are. In other words, they will calculate your income-to-debt ratio.
Obtain new credit. Having at least one or two revolving account will increase your credit score if it is used correctly. Revolving accounts consist of major credit cards (Visa, Master Card), department store cards (JC Penny’s, Sears), or a jewelry account card. It’s important to understand that it will not be easy to get these credit cards, you will likely have to start with a secured credit card by submitting a minimum deposit. Pick the card that has the lowest interest rate. If your credit score is below 600 you are not likely to be approve for a department store credit card, this will only result in an inquiry which will decrease your credit score by two points; therefore, inquiries should be kept to a minimum of two per year.
How to use your credit cards. You need to think of your credit cards as a convenience and not as an extension of your spending capabilities. Use them but be certain to pay the entire balance off each month, or pay more than the minimum. It is important that you not max out your credit cards. Remember you are using the credit card to rebuild your credit not to destroy your credit further.
Open a Bank Account. To develop good credit, it’s important to have a stable bank account. You should have a checking and savings. You do get more points for having both. Maintaining bank accounts will demonstrate to creditors that you are able to manage money. This means prevent over drafts.
It is important to remember that you did not get into this mess overnight, so it will take time to clean it up. If you have negative marks on your credit report that cannot be eliminated remember that in a few years they will not be so important if you take steps to build a new credit history.
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