Review Your Credit Report
Before anything, you want to obtain a copy of your credit report. The good news is, its free once per year, and its as easy as navigating to AnnualCreditReport.com and requesting it. Youre allowed one free copy of your credit report each year from each of the three major credit bureaus: TransUnion, Equifax, and Experian. Its important to keep an eye on all three because sometimes there are discrepancies between them. For instance, your Experian credit report might have an error while your TransUnion and Equifax reports are perfectly accurate.
Once you get your copy, youll find an entire section dedicated to any and all negative items. These are the accounts dragging your credit down: outstanding credit card debt or an old utility bill you never paid, for example. These negative items are the accounts we want to fix.
According to Experian, heres how long six common negative items stay on your report if you arent able to remove them:
- Collection accounts: seven years after the first delinquency
- Late payments: seven years from the first late payment, even if youve caught up and the account is current or closed
- Chapter 13 bankruptcy: seven years
- Chapter 7 bankruptcy: 10 years
- Paid tax liens: seven years
- Unpaid tax liens: 10 years
Rod Griffin, Director of Public Education at Experian, explains that these negative items have less of an impact over time:
Rod Griffin, Director of Public Education, Experian
Is It Better To Pay Off Collections Or Wait
From the viewpoint of repairing your credit score, its better to pay off a collection sooner rather than later, assuming you can afford to do so. However, a paid collection will only help your credit score if the collector agrees to remove the item from your credit report. Short of that, paying off a collection may have no effect on your credit score.
As explained above, you may have bargaining leverage with a debt collection agency. This manifests when you submit a pay for delete letter that offers to pay the debt in return for removing the collection item from your credit report. Your offer may be for the full amount owed, but you can request a partial write-down of the balance due.
For example, suppose you had a $10,000 credit card balance and were unable to make payments. Eventually, the card issuer wrote off your account and sold it to a debt collection agency for 20 cents on the dollar. The issuer collected $2,000, which means the collection agency must collect at least that much just to break even.
The fact that your original debt was $10,000 may be less important to the collector than to the credit card issuer. If the collector were to collect, say, $4,000 on the old debt, it would rack up a gross profit of 100%. Therefore, the collector may be willing to accept a pay to delete deal.
That is, a higher score will improve your access to credit and lower the amount of interest youll be charged. A higher credit limit will reduce your credit utilization ratio.
Writing Your Credit Dispute Letter
Now that you have your freshly pulled credit report in front of you score and all its time to look for the items listed on the report.
Youre going to need to write letters to each bureau that lists problematic items. So, if all 3 bureaus show issues you want to resolve, then you need to write to each one, individually.
The best advice that I can give you is to hand write these letters so that it looks personal, and not like every other downloaded template that these bureaus see each and every day.
They receive thousands of these each day, so if you think that the template will slip by without a thought, youre probably wrong.
eOSCAR: The credit bureaus use an automated dispute processing system called eOSCAR. This system scans each letter utilizing OCR scanning technology.
From their website:
So, what does this all mean? It basically means that you cant simply send in the same letter everyone else is sending and expect different results .
Lets construct a sample letter that you can use to dispute the credit report errors on your report.
Now, continue reading this before sending them out!
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Hire A Credit Repair Service
Disputing errors can be time consuming, especially if your history has several mistakes or if you were a victim of identity theft. Reputable credit repair companies such as , Lexington Law or Sky Blue may be viable solutions if your file is riddled with inaccuracies.
Credit repair services can help you dispute inaccurate negative information and handle creditor negotiations. However, if you decide to hire a credit repair agency, remember there are consumer protection laws that regulate how they operate and what they can do. The establishes the following regarding credit repair services:
- They cannot provide false or misleading information concerning a persons credit status and identification
- They must provide a detailed description of the services they provide
- They cannot charge for their services until they have been completed
- There must be a written contract detailing the services theyll provide, the time frame in which these services will be provided and the total cost for them
- They cannot promise to remove truthful information from your record before the term set by law
- You have three days in which to review the contract and cancel without penalty
S To Fix My Credit Rating
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Why Should I Get My Credit Report
An important reason to get your credit report is to find problems or mistakes and fix them:
- You might find somebodys information in your report by mistake.
- You might find information about you from a long time ago.
- You might find accounts that are not yours. That might mean someone stole your identity.
You want to know what is in your report. The information in your report will help decide whether you get a loan, a credit card, a job or insurance.
If the information is wrong, you can try to fix it. If the information is right but not so good you can try to improve your credit history.
What Will Help Improve Your Credit Score
- Your Payment History: Delinquencies and missed payments hurt your credit score more than most other factors. In fact, the FICO scoring model ranks payment history as most important in your credit profile.
- Your Credit Utilization Ratio: If youre using a lot of your available credit on your credit cards, expect your credit score to suffer. For best results, pay down your credit card balances to 25%. Never exceed 30% of your available credit lines. Often, keeping an account or two open after youve paid them off can decrease your credit utilization ratio and increase your score.
- Other Factors: Keeping a mix of different types of credit a student loan, a couple credit cards, a car loan, and a mortgage, for example will help your credit score some. Limiting new credit applications can help, too.
Developing these good habits will help a lot, but lets be clear: a major negative entry like bankruptcy, foreclosure, or repossession on your credit file will cause bad credit.
The good news: Even if you cant get them removed using the four strategies I outlined above, these negative items on your credit report hurt your score less and less as they age.
So by making good credit decisions now, youre adding positive information to your credit history thats newer than your negative information.
Your good decisions will help your score eventually!
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Can Disputes Hurt Your Credit
There is no reason for a dispute to ever hurt your credit. At worst, it may have no impact on your credit score.
However, your score should rise if a dispute successfully results in the removal of derogatory items from your credit report.
Perhaps the only negative outcome from a credit dispute occurs when consumers abuse the process by submitting frivolous challenges. Eventually, a credit agency will recognize this kind of abuse and just ignore your dispute submissions.
Like the boy who cried wolf, this can come back to bite you when you suffer from a real credit report error.
Paying An Overdue Balance
Paying a delinquent balance doesnt erase the negative entry on your credit report. Once you pay the balance, the account status will change to Current or Ok as long as the account isnt charged off or in collections. Charge-offs and collection accounts will continue to be reported that way even after you pay the balance.
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How To Dispute Accurate Information In Your Credit Report
Accurate items in your record can’t be removed before the term set by law expires, which is seven years for most negative items. For example, if you truly missed payments on your credit card, your dispute to remove that information will be denied. However, the information will automatically fall off your credit report seven years from the time you missed the payments.
If you do have valid negative items on record, here are some things that might help:
How To Dispute Credit Report Errors
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Errors on your credit reports can cause your credit scores to be lower than they should be, which can affect your chances of getting a loan or credit card and how much interest you pay. Disputing credit report errors and getting those negative items removed can be a quick route to a better score.
Here’s how to dispute credit report errors and have them removed in four steps.
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Cleaning Up Your Credit Wont Happen Overnight
In many ways, your credit is similar to living with white carpet: If you dont practice regular caution and restraint, youre going to have a stubborn mess to clean up. And, if you do wind up with a stained carpet, you cant simply use any old cleaner you have to clean it the right way, or risk ruining it.
On the bright side, your credit can be cleaned up, no matter what kind of mess you make . All it takes to clean up your credit is to identify the problems, lay out a sound plan, and tackle the issues one by one.
Over time and with some hard work you can clean up even the most stubbornly stained bad credit. Just be patient and know that it wont happen overnight.
Hire A Credit Repair Company
If youre looking for the easiest way to fix your credit report, the following three credit repair services earn our top marks based on BBB ratings, industry reputation, and our own reviews.
These services challenge each of three major credit bureaus to verify, correct, or remove negative items on your credit reports.
The Fair Credit Reporting Act entitles you to dispute inaccurate items on your credit reports. You can do so through the mail or online at the three credit reporting company websites.
While you can attempt to fix your credit yourself, the process requires effort, patience, organization, and expertise. For what many consumers consider to be a reasonable price, you can hire a credit repair organization to do the work for you.
Some disputes are easy to resolve, such as the removal of outdated information. Other disputes require more work, including submitting evidence to contest items and forcing the bureaus to validate questionable data. The ideal outcome is to remove enough negative items to give your score a boost.
Most credit repair services offer a free consultation to review your credit reports and identify fruitful areas worth challenging. The credit specialist will review with you the different plans the company offers, what services come with each plan, and how much each plan will cost you.
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What If They Dont Comply
If the CRA does not comply, then your next move is to send an intent to file a complaint with the CFPB .
If the first 2 letters do not get the errors removed, then its in your best interest to let the CRA know that you intend to do next.
Heres an example letter:
City, State, Zip Code
Dear Sir or Madam/To Whom It May Concern,
Please be advised that if the items are not deleted I will be filing a complaint with the CFPB .
On I requested that inaccurate/erroneous items that were illegally being reported to my credit file with your agency be deleted. You refused to do so and claimed to have verified these items.
On I requested, as required by FCRA 611 , that you provide me with a complete copy of the information that you used to investigate the matter. You failed to provide me with that information and again failed to delete the items.
Federal Law requires you to respond within 15 days. It has been over . Failure to comply with Federal Regulations by Credit Reporting Agencies will be investigated by the FTC and/or the CFPB.
These negative items have caused financial and emotional stress. Your blatant disregard of the law forces me to fully exercise my rights and file a formal complaint with the Consumer Financial Protection Bureau. Please be advised that I will file this complaint if these inaccurate items are not removed immediately.
1. Cell Phone, Account # 1234562. Cable Bill, Account #6543213. Credit Card, Chargeoff, Account # 00120034
Fix Or Dispute Any Errors
Unfortunately, credit bureaus sometimes make errors. According to one study by the Federal Trade Commission, a quarter of people had errors on their credit report and 5% of people had errors that could have made getting a loan more costly for them.
So while knowing your credit report and credit score is a good first step, its also crucial to look for errors. If you spot any, its a relatively simple process to dispute those errors and have them removed.
Apply For A Secured Credit Card
Rebuilding your credit can take time, but you can improve a bad credit score with a secured credit card. A secured credit card works just like a regular credit card, but your credit limit is based on either a security deposit you pay or how much you put into an attached account, like a savings account. For instance, if you put down a $500 security deposit, your secured credit card limit will likely be $500.
With good payment history and credit usage, your credit limit may increase and you can get your deposit back. You may even have the opportunity to upgrade your card to a traditional credit card.
What Is A Bad Credit Score
On the FICO® Score 8 scale of 300 to 850, one of the credit scores lenders most frequently use, a bad credit score is one below 670. More specifically, a score between 580 and 669 is considered fair, and one between 300 and 579 is poor. The table below offers more detail on where scores fall.
|FICO® Score Ranges|
|800 – 850||Exceptional|
VantageScore®, another credit scoring model which was developed by the three main credit bureaus , also uses a scale ranging from 300 to 850. But its definitions associated with each score range vary slightly. A VantageScore from 601 to 660 is considered fair, from 500 to 600 is poor, and from 300 to 499 is very poor. See the table below for a full breakdown.
|VantageScore 3.0 Ranges|
|781 – 850||Excellent|
The higher your credit score, the more likely you are to qualify for credit, and at better interest rates and terms. If your score is low, it can be difficult to obtain affordable credit or to get approved for a loan or credit card at all.
You can think of maintaining good credit as preventive medicine. You don’t know when something might come up, like a breakup that means having to find a new apartment fast, but good credit can help you handle any affliction with less hassle.
A bad credit score can lead to these roadblocks:
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Ask The Collection Agency To Validate The Debt
If you cant find inaccuracies on your credit reports, write to the collection agency and ask it to validate your debt.
Under section 809 of The Fair Debt Collection Practices Act, collection agencies are required to validate debts they are attempting to collect, if you request that they do so.
The main issue here is that you have only 30 days to make the request after the collection agency first contacts you.
If they are unable to validate the debt, you can ask them to remove it from your credit report.