The first step in cleaning up your credit record is to remove items that are inaccurate. The second is to start working on damaging entries that are correct.
Once you’ve obtained a copy of your file from one of the three major credit bureaus, look it over for erroneous information. You may be surprised at what you find.
For example, you may find accounts that do not long belong to you, which happens frequently if you have a fairly common name. Or there may be reports of missed payments even though you’ve never been late.
Cora Fulmore, director of housing for the National Foundation for Consumer Credit, says tha credit counseling agencies frequently find that credit bureaus have confused one person’s record with another, or that a file contains information that is just plain wrong.
Also be on the lookout for outdated information. The fact that you’ve paid your account in full doesn’t remove an entry from your file; only time can do that.
But, by law, negative information may be reported indefinitely only under three circumstances: if you apply for $50,000 or more in credit, if you apply for a life insurance policy with a face value of $50,000 or more or if you apply for a job paying $20,000 or more and the employer requested a credit report in connection with the application.
Otherwise, negative data on credit and collection accounts must be erased after seven years rom the date of the last entry. Courthouse records, other than bankruptcies, also must be removed after seven years from the date they wre filed. And bankruptcies must be stricken after 10 years.
If your file includes incomplete, inaccurate or outdated information, you are entitled to have the record set straight without charge. Write to each bureau-if one report contains errors the others may too-and ask that the information be removed.
Under the Fair Credit Reporting Act, the credit bureau must investigate the disputed information within a “reasonable period of time.” The creditor has 30 days to verify the information. If the creditor does not do so, the bureau must remove the entry and send you an updated copy of your file.
You also may request that a copy of your revised file be sent to any creditor who has received it within the last six months.
If the creditor reports that the information is correct, you have the right to add a statement of up to 100 words presenting your side of the story. That explanation must be included in your report every time it is sent to an inquiring subscriber.
Fulmore suggests that your explanation contain a short statement about what caused your situation, what you did to solve it and where you stand at present.
You also might try to request a second investigation. Even though some credit bureaus say they won’t look into disputed items twice-and the law exempts them from investigating “frivolous or irrelevant” disputes-they are reluctant to deny a reinvestigation, says Los Angeles lawyer Robert Brown.
Brown has written a credit manual for consumers that is available for no charge from Countrywide Funding, 800-577-3732.
Next, try to negotiate settlements with your creditors. You may find that some will be willing to remove debts from your file if you agree to pay in full or make up what you owe, sais Robin Leonard, a lawyer and author of “Money Troubles: Legal Strategies to Cope With Your Debts” (Nolo Press).
Others might agree to “re-age” your account; that is, to make the current month the first repayment month so your record shows no late payments.
Leonard suggests that you contact your creditors’ customer service or collections department and make an offer. If you are turned down, don’t give up; ask to speak with a supervisor. And if you are successful, make sure your new, smaller payments are reported to the credit bureaus as timely.
If your debts are too great, or if you’re behind on too many accounts, consider consolidating them into one account. But don’t fall prey to so-called “debt consolidators” who charge a processing fee plus a monthly sum to cover arranged payments to creditors. After a few months, you’re likely to discover that the company skipped town without making any payments, or has forwarded only a small amount of what you had paid, and kept the rest as its “fee,” leaving you still further in debt.
Most reputable credit counseling srvices offer debt consolidation as part of their service. Based on your income and living expenses, they will negotiate with your creditors for a reasonable payment. Then, each month you send the agency a fixed amount to cover all your obligations, and the agency will pay your creditors.
While you’re in the processing of cleaning up your record, you also should start to rebuild your credit. Open a savings account, reduce your spending on credit-related items and keep your debt load down, Fulmore suggests.
According to Credit Card Holders of America, the average person has eight to 10 credit cards. But having the cards isn’t the problem, Fulmore says; it’s being unable to control your spending.
If you pay your accounts in full every month, carry zero balances and don’t run up any substantial balances, having credit cards probably is not a problem. But it’s another story if your accounts are maxed out and you’re running balances every month.
In that case, Fulmore suggests, close out your accounts. But don’t just cut your cards in half. Send letters asking that your accounts be closed and that credit bureaus be advised that the accounts are being shut down at the client’s request.
Once you have saved enough money, Fulmore and Leonard suggest borrowing against your account so you can show future creditors that you can now handle your monetary affairs. And make sure the bank reports your loan to the credit bureaus.
You also can apply for a secured credit card, persuade a friend or relative to co-sign a loan with you or borrow from your credit union and have the payments deducted from your paycheck automatically.
The idea is to be able to demonstrate to a prospective lender that the past is history.
“You want to be able to show stability, to show a willingness to pay your debts that may have been absent before,” Fulmore says. “It’s important to be able to paint a picture that things are bettr now. Lenders are willing to bend over backwards to help. But there are some things you have to do to make it happen.”
Once you’re on your way, the only thing left to do is to bide your time. it may six months to rebuild your credit, or it may take 36 months. It all depends on what you owe and how motivated you are to buy a house.
