"I've fallen and I can't get up!" While this phrase is best known from the tv commercial for a medical monitoring device, it could also very well be attributed to people who for one reason or the other have gotten into trouble with their credit report. This is because once you've fallen down in regards to your credit, it can be very difficult to get back up. Difficult, but not impossible.
So, if you've fallen on hard times and you're credit report reflects this, then this article is for you. In it, I'll talk about the steps that you need to take in order to get yourself back on solid ground.
The first step is to make sure that whatever it was that caused you to stumble financially has past. It makes absolutely no sense to do all of the work that will be necessary to "fix" your credit, only to fall down again and to have to start over.
If you're sure that you're ready to move forward with fixing your credit the next step is to get a three bureau credit report with public records checked pulled on you.
I'm not a big fan of trying to get one of the free ones that is available through any one of several web sites that offer free credit reports or even the ones that you're entitled to from the bureaus themselves.
The reason that I'm not a big fan is that the "free" ones that are advertised usually have a catch. That is you have to sign up for their credit monitoring service and while I don't know how much they charge and I'm sure that having their service might be a good thing to consider, it's not what we're working on right now. After you get your credit fixed, if you like, you can go back and access their programs.
Regarding the "free" report that you're entitled to with the bureaus themselves, I've found that they are hard to read and that it's a hassle to get all three of them at once. So, to me, it's better to go ahead and pay for a three bureau report from you're friendly mortgage banker or other financial services professional.
You can also order one on the internet, but make sure that it pulls from all three credit bureaus, TransaUnion, Equifax and Esperian.
Once you have the report, you'll know where you need to begin. Examine each trade line for accuracy and age. Something like 75% of all credit reports contain inaccurate information and creditors can only report negative information about you for 7 years from the time that the default occurred. So, even if the information is inaccurate, if you have a trade line that is getting ready to go past 7 years from the time that the default occurred, then you might just want to wait it out.
If you find something on your report that doesn't belong to you, that simply isn't right, is from an account that is older than 7 years then you need to gather whatever documentation that you can that supports your position.
Also, please take note of any accounts that are being reported by different companies. For example, the original creditor might still be reporting the debt as being owed to them even though they sold the debt to a collection agency. That collection agency might be reporting that debt against you even though they in turn sold the debt to another collection agency.
While it might be difficult to actually ascertain who legitimately owns the debt, the facts of the matter are that only one company can be the rightful owner. If a company doesn't own the debt any more, then they cannot legally report it against you!
The one exception to this is when a creditor has contracted with a collection agency to collect the debt, but hasn't sold the account to them. In this case, the original creditor needs to reflect this on the trade line that they are using to report this information on you.
After determining the rightful owner of the account, the age of the account and the accuracy of the account, then you're ready to write your dispute letters. Referencing each trade line's account number, write a letter to each of the bureaus "disputing" the "trade line". Be sure to include a copy of the relevant documentation with your letter (being sure to retain the original yourself).
By law, the creditor has to respond to your dispute within 30 days or the credit bureau has to remove the disputed information. That said, there is very little to keep the creditor from rereporting the same information again, even if they miss the deadline.
It's also not unusual for a creditor to;
1) simply sell the debt to another company in the event that they do miss the deadline. In which case the new "creditor" will have to be disputed all over again.
2) lie and to reaffirm the debt. This happens even if you have definitive proof that the debt isn't yours or isn't being reported accurately.
So, after you're "disputed" the inaccurate information and have gotten the trade lines removed that you can get removed, it's time to contact the creditors that remain.
If it's an account that should have been deleted for one of the reasons outlined above, then you need to point this out to the creditor themselves. While the penalties for violating the fair debt collections act and the fair credit reporting act can be substantial, getting these laws enforced can be very difficult. Basically, unless the Federal Trade Commission notes a "pattern" of abuse on the part of a creditor (meaning that there have been thousands of complaints against them), you're basically on your own.
The only way to "force" the creditor to adhere to the law is to sue them in your federal district court.
Most times, when you bring to their attention that they are violating the law, that you are aware that they are violating the law and that you plan on pursuing them if they continue to violate the law, the creditor will crack and agree to remove the trade line.
If they don't, then you need to be in a position to actually pursue them. This means that you're going to have to be willing to pay an attorney to write them a letter. In my experience, I've never seen a creditor continue to pursue a debt after they've gotten the letter from the attorney.
I have seen them sell the debt, which as mentioned above, means that you will have to start over with the new creditor. If this becomes the case, then talk with your attorney about whether or not it would be worth it to actually file a suit against these creditors.
What if the debt is legitimate?
In this case it becomes somewhat of an ethical decision on your part. If you actually do owe the debt, then you might simply want to contact the creditor and make payment arrangements with them that will result in the debt eventually being paid off.
Another option is to attempt to "settle" the debt for less than the amount owed.
If you choose to go this route you have to remember that you can't steal something slowly! You will have to be in a position to pay the amount agreed to quickly!
Many creditors will settle for a substantial amount less than the amount truly owed, but they will want their money quickly. If you don't have the money to settle with the creditor, you might be better off waiting until you do. This might mean that you have to address one trade line at a time.
Another thing to remember is to see if the creditor will agree to remove the trade line completely. If the trade line wasn't yours or was a mistake, then this goes without saying that it should be removed. However, even if it was a legitimate debt, some creditors will agree to this upon being paid. Most won't, but you never know and it doesn't hurt to ask.
IMPORTANT NOTE!!!!
If you do make arrangements to settle a debt or to make payment arrangements, GET A SETTLEMENT OR PAYMENT AGREEMENT IN WRITING BEFORE YOU SEND THEM ANY MONEY!!!!! Also, make sure that you take note of the name and/or operator number, as well as phone number of the person who agrees to the settlement.
After you get the trade lines removed or corrected and have made the arrangements that you can make, there are some other things that you can do to keep your credit scores higher.
The most obvious ones is to make your payments on time! The easiest way to do this is to make sure that you only utilize debt when it truly benefits you. Also, be sure to live within your means and to always have a "rainy day" fund in the event that you suffer an economic setback.
Most people who get into trouble with credit find themselves there because they were living too close to the edge and suffered some kind of economic shock such as a job loss or an illness. Remember this when you get paid and remember to "pay yourself first". That is, put aside a certain percentage of each paycheck in order to protect yourself if something does go wrong!
Another thing that you can do to keep your credit scores high is to keep any balances that you run on a revolving account less than 60% of that trade lines maximum credit.
The reason for this is that when the computer models that "score" your credit look at your data, they interpret any charges that are higher than 60% of their high credit limits as being "tapped out".
Keeping balances on more than a few cards can hurt you too, therefore it's a good idea to consolidate your credit cards (as long as you don't exceed the 60% level) onto fewer cards if you're running balances on more than a few.
Another thing that you can do to help your credit score is to limit inquiries. The reason for this is that the computer gets nervous if they see you applying for too many lines of credit.
Be very careful who you give your personal information (such as your social security number) to because they might pull a credit report on you. I had one client who went out car shopping and ended up with 12 inquiries into her credit even though she didn't end up buying a car!
If you've read this far you are probably getting somewhat discouraged because of all the ends and outs of fixing your credit. There are companies that will do this for you at a cost. I'm not familiar with any of these companies personally, but from what I've read be very careful who you sign up with if you do decide to hire someone professional to do this for you. Also, don't expect miracles.
If you decide to do this on your own, just remember that you are going to need to be patient. Fixing bad credit can take time and can be very frustrating.
There is also a point that you can come to where "fixing" your credit isn't the best choice for you. Sometimes your best choice is to hire an attorney and to file for bankruptcy.
I'm not an attorney and can't provide you with legal advise, but I am an expert on credit and will be more than happy to talk with you about your particular situation. Generally speaking, if your credit is such that it will take you more than 3 years to pay off your balances and you already have numerous collection accounts, then seeking a legal recourse might indeed be your best choice. Again, I will be happy to talk to you about your situation and give you my best advise.
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Contributor's Note
This article is not intended to replace advise from a competent legal expert. When in doubt, check it out! A hundred bucks to an attorney, might save you thousands in heartache!
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