The first thing you need to do is obtain a new copy of your credit report from the three major credit bureaus (Equifax, Experian and TransUnion). When you apply for credit, each business may use a different reporting agency; your mortgage company is more thorough and will generally check all three. Check the Internet for a site where you can get all three for one low price; each will give you a different score and one may have more in-depth details or different information than the others.
What To Look For
- Duplications – If a collection agency’s contract has expired and your bill is turned over to a new one, the first agency must remove their report. Send a request to the credit agencies where corrections should be made.
- Charge-Offs – When an old creditor writes off your debt, it means they have received a tax credit or insurance reimbursement; i.e. they have been constructively “paid.” If the report indicates “charge-off” yet shows a balance as “owed,” then their amounts are still reflecting in your total debt ratios. Contact the company’s customer service department to have these removed. If they do not respond, report them to the credit bureau.
- Inaccuracies – Check for incorrect amounts owed or erroneously reported late payments. File your dispute of the entry as soon as possible with the appropriate credit bureau. If found to be false, the line item must be removed according to Fair Credit Reporting Act (FCRA). There are businesses that will charge a tidy sum to “clean” up your credit; they are merely filing disputes of any negative items (no explanation is required), which you can easily do all by yourself.
Consolidation and Negotiations
- Realize that when your creditor turns over the debt to a collection agency, they will eventually write off the major part of the debt, while recovering only a small percentage from collections.
- Contact your creditor’s customer service department and offer a lump sum payment of less than you owe. If you’ve been running late or delinquent for awhile it increases the chance they will negotiate with you. If you pay the settlement amount, they are required to remove the full amount owed from your report.
- Filing a Chapter 13 Bankruptcy can wipe your slate clean, allowing you a fresh start to build a new credit picture. New lenders or landlords will take into consideration the credit you establish post-bankruptcy, and may consider you a safer risk; they also know you can’t file another one for at least seven years.
- If you know you are going to have to make a late payment, contact the creditor to make a payment plan in order to prevent a late entry to your report. They will work with you if you call before the payment is past due, and if past payment plans have been paid as agreed.
- A couple of months after filing your complaints and requests with the credit bureaus, buy a new set of credit reports and review them carefully to make certain the appropriate changes were made.
- If corrections haven’t been made, send the creditor or collection agency a certified “second notice.” By law they have only thirty days to verify the debt in your first written dispute or they must remove it. A second notice means they are out of compliance with the FCRA and can be fined; be sure to keep a paper trail.
Start building new credit by paying up your past due accounts or making lump sum payments when you receive bonuses or tax return refunds. Get organized and plot our your pay dates and bill due dates onto a calendar designated solely for this purpose. Over time your efforts will begin to outweigh the bad history and reflect accordingly on your overall credit ratings.
Sheila Barnett writes on personal finance and budgeting tips for FinancialCalculator.org, a website dedicated to helping you plan for your personal financial and retirement needs. Her favorite tool on the site is the interest calculator