Credit Repair Made Easy

How much would you pay to have perfect credit; $100, $500, $1000?! There are literally hundreds of credit repair companies who are more than willing to take your hard earned money with a promise to hand you back the perfect credit report. For someone with bad credit, paying a company $500 to raise their credit scores to 730 or better makes perfect sense. The difference in monthly payments on a $300,000 home loan with poor credit verses the same loan with great credit is over $200 a month. Even if someone charged you $1000 for a credit clean up, you would effectively pay for that in only 6 month of lower home payments. The big question is, “does it work?” Can a company really remove accurate information from your credit report? According to the Better Business Bureau, the Federal Trade Commission, and several other reliable sources, the answer is unequivocally, NO! In fact the sources I just mentioned go so far as to call a company or anyone that offers to remove accurate information from your credit report a scam artist.

The truth is no one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost and I am going to show you how.

Repairing your own credit is a lot easier than you think. All you need is some time, a little patients, and of course a computer. Before you just dive right in and start manipulating your credit report, I strongly suggest you take a little time and research what factors make up a credit score. You can read the article I wrote “Understanding Your Credit Score”. I would also suggest you take the time to know your rights and what you can legally do. It is your responsibility to ensure the steps you take are going to help your credit report and that you are following the law. You may read all 86 pages of The Fair Credit Reporting Act (FCRA) at www.ftc.gov/os/statutes/fcra.htm. However, I will assume you want to skip reading the FCRA and jump right in repairing your credit so to follow I have listed the top ten things you need to know about credit reports.

1) You’re entitled to a free report if a company takes adverse action against you, (like denying your application for credit, insurance, or employment) and you ask for your report within 60 days of receiving notice of the action. You’re also entitled to one free report a year if you are unemployed and plan to look for a job within 60 days; if you are on welfare; or if your report is inaccurate because of fraud or including identity theft.

2) Each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — are required to provide you with a free copy of your credit report, at your request, once every 12 months.

3) You can dispute mistakes or outdated items for free. Under the FCRA both the consumer reporting company and the information provider (that is, the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report.

4) Do not expect that flooding the credit bureaus with your requests will somehow result in them dropping all of your derogatory accounts.

5) You may be successful in removing items that are accurate, however it is possible for the accurate item to be re-reported at a later date.

6) Repairing your credit report is not an instant process, it will take time and there are several steps involved:

a) Dispute and correct errors.

b) Rectify bad debs, collections, and judgments.

c) Rebuild good credit.

7) 70% of all credit reports contain some sort of error.

8) The FICO score is based on five main categories. It is important to note that a given factor may have more weight for one individual than for another based upon the difference in credit history, credit usage, and type of credit used. Listed below are the five main categories and how they affect your score

1. Payment History. Have you been paying your bills on time?

2. Amounts Owed. Owing money on your accounts is not necessarily bad. However, being close to your maximum credit limit can hurt your score. Having several accounts “maxed out” will have a definite negative impact.

3. Length of History. The score takes into consideration both the oldest account and an average age of all your accounts. In general, a longer credit history will increase your score.

4. New Credit. Are you taking on new debt? Do you have multiple new accounts? Inquires remain on your credit report for 2 years, although FICO scores only considers inquires from the past 12 months.

5. Types of Credit in Use. The FICO score will take into consideration the types of accounts you have; mortgage, auto, department store, etc. However, it is not necessary to have one type of each account, and it is not a good idea to open new accounts that you don’t need.

9) Late payments, collections, judgments and other negative items can remain on your report for 7 years. A Bankruptcy can remain on your report for 10 years. Inquiries from potential creditors can stay on your credit report for 1 year.

10) If you have a debt that is turned over to an outside collection agency and the collection agency reports the debt to credit bureaus, that same debt will be reported twice on your report. It is reported as a bad debt by the original creditor and then it is reported as a collection by the collection agency.

Don’t be too hard on yourself

If you are reading this, chances are you have been told you have less than perfect credit. For a lot of people this can be very embarrassing. The first thing you need to realize is that you are not alone. In fact I have noticed that almost everyone will have trouble with credit at some point in their life. The fact that you are taking action is something to be proud of. We all have situations in our lives that may have resulted in a bankruptcy, collection, or judgment. By doing nothing these negative accounts will continue to fester in your credit history. What we are going to do is to take charge of your credit, fix what is broken and replace bad parts with good ones. It is going to take time and you must be careful to not over do it once you have better scores.

Meat and Potatoes

Alright, so you are ready to dive right in and start fixing your credit. We are going to be working with the three main credit reporting bureaus; Equifax, TransUnion, and Experian. In order to do anything, you are going to need to know what is on your credit report. There are a multitude of ways you can get your credit report. However, the only place I recommend you get your report is through www.annualcreditreport.com . This web site was set up by the three bureaus to comply with the FCRA requirements. It is the only place you can obtain a free credit report and it will not hurt your credit score. Furthermore, the reports you obtain through this web site will allow you to dispute negative items. Obtaining a credit report from a grantor of credit (car loan, mortgage, etc) can lower your credit score.

Once you are logged into annualcreditreport.com (I shall refer to this as ACR) select your state and hit the red “Request Report” button. Fill in the appropriate information on the next page, and hit enter. On the next page you will be allowed to select ONE of three bureaus. It does not make any difference which bureau you start with but for the purpose of this article, I will assume you selected Equifax. Follow the screens and verify the information you entered is correct. Have you ever wondered how your name got so butchered on those credit card applications? Improper data entry! So don’t add problems to your credit report, make sure your information you enter is correct.

After you have verified your personal information, you will end up in the “Personal Information Check” area. Here you will be asked a series of questions that presumably only you should know. Take your time and don’t be afraid to look up the information if you need to. If you make a mistake and answer incorrectly, the punishment is some quiet reflection on your erroneous ways as you wait on hold for someone to unlock your account. After you have successfully worked your way through this labyrinth you will be able to view your credit report. Some of the bureaus will ask you if you want to spend about $6.00 on your credit score. This is completely up to you, it is nice to have a base line score to see your progress. Just keep in mind that there are two basic types of scores, FICO and Vantage. Most lenders are still using the FICO based scores which are much lower than the Vantage scores. Don’t be surprised if your Vantage score is in the high 700’s and a lender tells you your FICO score is in the low 600’s. Once you have access to your score and credit report, you will want to print them both right away.

Take a close look at your report. The first thing you should look for are errors in your name, job history, or where you have lived. This information will not affect your credit score but it can create problems later on down the road when you are applying for a loan. If you find any errors, you will need to start a dispute. This can be done right where you are with just a few clicks. Each bureau is a little different, but you should be able to locate the online dispute without too much effort. Take the time to read each screen and know what you are disputing. Some bureaus are a little tricky and you need to pay attention. If you are too hasty you will dispute the wrong thing or think you started a dispute when you didn’t.

Next you need to look at your accounts. You will be looking for accounts in three categories;

Good accounts that are open,


good accounts that are closed and


derogatory accounts.

Let’s start with accounts that are open and in good standing. The first thing you need to ask is, “is this my account?” If it is not your account, do not just automatically start a dispute! This may sound a little crazy, but it is not uncommon to find that someone added you as an authorized user on their account. In certain circumstances you may need the credit depth and this account is helping you. This is a double edged sword. While the account may help you now, all it takes is one late payment from the account owner and you will see a drop in your scores. If you do not need the account, I suggest you remove it from your name.

Next you want to verify the amount you owe and the available balance. If you are looking at a credit card, don’t be surprised if your last payment was not posted. It can take up to 30 days before a credit report shows a payment. I would only worry about the balance if it is significantly more than it should be and it has been more than 30 days since your last payment. Once you are satisfied with the amount owed on your accounts, take a look at the credit limit. The credit limit is important because the lower the ratio of the amount owed to the limit, the better your scores will be. What I mean by that is if you have a card that shows a limit of $2,000 and you owe $1,500, you owe 75% of your available balance. Anything over 33% is not good so you want to have your credit limit correct. Some credit cards will only report the highest balance you have had. I once had a client who had a card with a $1,000 limit. The most she had ever charged in one month was $350. When I pulled her credit report she only owed $100. Since she didn’t have much credit, her scores were based heavily on the one card. Because her ratio was less than 33%, she had good scores. However when her credit was rechecked by an underwriter, her scores had dropped as much as 25 points. The only difference was that she charged her card up to $450. She still owed less than 50% of her available credit limit but the credit report showed her highest balance as $450 and her current balance was $450. The credit model saw this card as maxed out. If you have a credit card that reports like this, you can charge that card up to the max and pay it off as soon as you get the bill. This will help get your ratios down and improve your scores. Just make sure that you pay off the card and that you are not applying for any credit for at least 30 days after you pay off the debt.

So far you have looked through all of your good accounts and verified that they belong to you, the amounts you owe are correct and the balances are also correct. However, you probably noticed a few accounts you haven’t used in a long time and you thought they were closed but they show they are open. The initial reaction is to dispute these accounts so that they are reported as closed. Before you do that, you need to know a few things. One, if you have not used the account in more than 2 years, it isn’t doing much for you any way. And two, if you are in a situation where you have very few good accounts, it is best to leave it alone; it may be helping you. The one situation where I would suggest it is ok to dispute is when you have a sufficient amount of open trade lines (3 or more). This is especially true of ‘finance cards” which are typically any department store card. This type of credit account is not considered favorable and too many finance cards will hurt your credit. That is something to think about next time the check-out clerk offers you 10% off if you apply for one of their cards.

The next group of accounts you want to look at are the accounts that are closed and in good standing. There is very little you should do with these accounts. If the account has been closed for more than a few years, it will not have much positive affect on your scores. Since the account is in good standing, it certainly will not have a negative affect. By opening a dispute on any of these accounts, you run the risk of someone uncovering a late payment or other type of derogatory remark that could hurt.

The last section and the section you have probably been dying to get into are the negative accounts. Let’s start by looking at the accounts that you pay monthly. The only reason why an account is negative is, or has to do with, late payments. There are however many reasons to dispute an account including, but not limited to: the payments weren’t late, the account is not yours, or the information is just not correct. I suggest you start with the accounts that are open and simply show late payments. There are two ways to go about this. If you only have one or two late payments, you can call your creditor and simply ask them to remove the lates. This works for clients who have a long history with the creditor and have made a substantial amount of payments on time. However, a lot of people may have dozens of late payments and even rolling late payments (late from one month to the next). If that is your situation, you can dispute it. Now you are probably thinking, “Wait a minute, why would I try to dispute it if I know I made the payments late?” My answer to that is: if you know the report is accurate and you know disputing it is dishonest, than move to the next account. If you believe that you made some late payments, but you believe you made fewer late payments than are being reported, you can dispute the account. I had a client with 18 late payments over a 36 month period. She knew she paid some late payments but didn’t believe she had made that many. As you will soon see, the online dispute process is a multiple choice dispute. In other words, you will be given a choice of reasons as to why you are disputing the account. You are limited in choices and “I believe I paid this account late a few times but not that many,” is not an option. So in order to dispute the fact that you do not believe you paid your account late that many times, you will need to check the “I never paid this account late” box. This is going to force the account holder to investigate your account and prove each late. Often times you can eliminate one or two late payments or even get a 60 or 90 day late to get re-reported as only a 30 day late. This can however work both ways. Say a company is reporting 4 30-day late payments on your account and you dispute that hoping to get your late payments removed. It is possible that during the investigation, it is discovered that you really had 6 30-day late payments. If this happens, your scores are going to take a hit. This is a chance you have to be willing to take when you are disputing legitimate derogatory accounts.

By law, once you start a dispute the creditor only has a “reasonable amount of time” to prove the negative information, which is usually only 30 days. If the creditor fails to respond, the information is removed from your credit report. This is why some people will continue to dispute items over and over. They are hoping that the creditor will at some point fail to prove the information and the account will mysteriously become a perfect account. This is similar to the theory of fighting a speeding ticket in court. If you are guilty and the citing officer fails to show up for court, you win the case. This does in fact work some of the time. The thing you need to be aware of is that unlike a speeding ticket, the creditor can at a later date prove your late payments and once again start reporting them.

You not only have to look at just late payments, but you also need to look at the legitimacy of the accounts. I had a client who had 4 different mortgages being reported at once. The problem is that they only owned one house. They had both the servicer and the holder of the loan reporting. (Often one company will hold the Note and another company will collect the payments) This hurt my client’s credit because they had one late payment that showed up several times and it appeared they were far more in debt then they actually were.

If you have ever claimed bankruptcy, you most likely will have a lot of errors on your credit report. Even though most creditors recognized the bankruptcy, many fail to properly report that the bankruptcy paid off the debt. This will lead to multiple accounts on your credit report showing as unpaid or as a bad debt. If you are in this situation, cross check your bankruptcy papers with your credit report and dispute any accounts that are in error.

I have disputed everything, now what?

Once you have disputed all of the derogatory accounts with one of the credit bureaus, you must repeat the process with the next two bureaus. Fortunately the process is identical with all 3 of the bureaus so disputing with the next 2 will be easy.

Once you have submitted your disputes, you will receive the results of your findings by mail or email within 30-45 days. If you received the results you wanted, you are done. If however you are not satisfied with the results, you will need to re-dispute. Here is where you need to use some real discernment. If the results you get back are not as good as you would have hoped for, but, the results are better than what they should have been, you might want to leave well enough alone. What I meant by this is; lets say you paid an account at least 30-days late for a year. But, the results come back that you only had 6 30-day late payments that year. If you continue to dispute the truth, you could end up with the dispute results the second time reflecting the late payments all year. If the dispute results are better than what your real payment history is, I suggest you stop. If the results you get back show a derogatory that is not true, keep on disputing. If you have proper documentation to your claim, I suggest you make your second dispute by mail and include a copy of your documentation. Each of the credit bureaus provides their address on their web site.

You will need to continue this process every 30 – 45 days until your credit is as clean as it is going to get. Keep a log with good notes, passwords, and report numbers. Equifax will change their 10 digit “Confirmation Number” after each dispute. Make sure you make a note of the new number or you will not be able to log back in where you left off or see your new results.

Tips and Tricks

If you are one of the tens of thousands of consumers that have found you have less than desirable credit, simply disputing late payments is most likely not going to be enough to give you the score you, or lenders will desire. Chances are you have poor credit because the credit scoring model has determined you are a poor credit risk. As I said earlier, the path to great credit is not a single step operation. Once you have done your best to rectify all of the errors on your report, it is time to rebuild your credit. The single biggest error most people make when rebuilding credit is to open too many new accounts. Before you run out to your favorite department store and put a shopping spree on a new department store card, STOP! No matter what you do, resolve to never make another late payment again. People have poor credit because they don’t pay their bills on time. I realize that creditors do make mistakes and we all know someone who has a horror story about a creditor. But 99.9% of the time, bad credit is a result of bad choices; usually it is a choice to buy something you really can’t afford. Here are 2 important rules to live by.

Rule #1 is to think before you apply. Do you really need a new account anyway? If you already have 3 open accounts, just start paying those on time and you will build a better credit rating much faster than with a new account. If you need more accounts, open them wisely and very slowly. Stay away from car dealers and department stores. I have met far too many people who attempted to rebuild their credit with a $550 a month car payment. If you make all of the payments on time, it will work, but most likely you will be strapped to that loan for 5 or 6 years and a payment that high will keep most people from getting ahead financially. Department stores and finance companies (unsecured high interest loans) are a bad way to build credit as well. Credit scoring does not view these accounts positively.

If you are trying to reestablish credit, you have no open accounts, and you have been turned down by two or three credit card companies. I suggest you open a secured credit card. Some of the bigger banks have secured cards with low fees and the potential to roll into a non-secured card if you keep the account in good standing. As far as a credit report is concerned, there is no difference between a secured credit card and a non-secured credit card. Remember to keep that balance low and pay it off every month. If you fail to pay your card off every month, that is a great indicator you bought something you couldn’t afford and you are headed back into trouble.

Rule #2 Pay first, ask questions later. I had a client apply for a new home loan. In my initial interview with him he told me had had perfect credit, in fact he said that the last time he saw his credit report, his scores were near 800. However, when I pulled his credit report, his scores were in the low 600’s! When I reviewed his report, I found a car loan that had gone into default and was repossessed. I immediately called the client to see if this was a mistake. The client explained to me he bought a new car and began to have some problems with it. He had brought the car in for repairs twice under warranty, but on the third time, he told the finance company that he was not going to make his payments until car was fixed correctly. So he stopped making his payments as promised while the car was being repaired and continued to not make the payments due to a few other mechanical issues with the car. The finance company reported his payment late for 30, 60 and then 90 days and the report showed the repossession! My client told me he eventually got the car fixed under the warranty and paid to get it back. Because of the recent late payments and repossession, his interest rate went from 6% to almost 10% for a home loan. The jump in payment was more than the client could afford and he was forced to stay a renter. So do you think he taught the finance company a lesson? Not hardly! It appeared to me in our conversations that he didn’t learn anything either, but hopefully you learn from his mistake. That is why I say pay first and ask questions later. When you fail to make your payments, it is your credit that is going to get hurt. I have seen this scenario played out far too many times, especially when it comes to medical payments. Most medical billing offices will give you a very short period of time to pay your bill before it is turned over to a collection company.

Something you might want to try is “opting out”. You can go to www.optoutprescreen.com and elect to be removed from all pre-approved credit offers. I have heard some people say this raised their scores by 20+ points in one week. I have also heard people say this will do nothing to your scores but it will help cut down on junk mail. I tried it on myself and did not see any significant change in my credit scores. I do think I have saved a tree or two and my shredder works a lot less now.

Conclusion

At some point in your life, your credit score will affect you. Taking the time now to clean up your credit and take the necessary steps to ensure good scores for the future is like putting money in the bank. As I have said, this is a lengthy process and you must be persistent. If you have poor credit, take some time to reflect on how you got there. Don’t be too hard on yourself, remember that almost everyone will at some point become overextended in debt. The trick is to learn while you are young and your income is low. If you need help getting out of debt or if you want more education about budgeting and smart spending, there are a lot of great resources out there.

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