Repairing Your Credit Score
Credit score is by far the most important “score” in your life. It is how banks, credit cards, and even car insurance companies rate you. According to MyFico the difference between a 620 score and a 760 credit score for mortgages is over 150 basis points. On a 300,000 loan that translate to an extra 290 dollars a month! Here is some info on how to check your credit score, ways to drive your score higher, as well as great habits to keep that score high.
Finding Your Credit Score
Unlike your credit report, credit bureaus are not obligated to tell you what your credit score is once a year. It helps to get a frame of reference to start from when you’re trying to repair your credit which is why I’d recommend using either Credit Karma or Credit Sesame to find your credit score, otherwise known as your VantageScore. This is what most credit card companies and other lenders will use in determining your creditworthiness. You can also pay for a $1 trial at any of the 3 major credit bureau websites (Equifax, Transunion and Experian) but it only lasts 7 days and they automatically re-bill you between $20-$30 a month after the seven days are up.
At the same time, I’d also suggest getting your credit reports from AnnualCreditReport.com. This is the website the three major bureaus use to satisfy their annual credit report requirements to consumers. If you’re trying to work on your credit score, I’d suggest drawing all three reports at once since they look different for about 90% of people who have used credit in the past. You’ll be able to get updated credit reports in the future before the year is up, which I will touch on a bit lower.
Once you have your scores and credit reports in hand, it should be fairly easy to see what’s hurting your credit score. High balances on credit cards, collection accounts, charged-off accounts, settled accounts, etc.
Paying Down Credit Card/HELOC Balances
This is probably the easiest way to raise your credit score since credit utilization is one of the biggest factors that go into determining what kind of score you have. People who might lend to you would much rather see you using $50 of a $1000 credit line (5% utilization) as opposed to $950 (95% utilization). Getting your utilization down under 10% is ideal and your credit score will reflect it within a month. It is not uncommon to see a credit score rise 40 points or more just from paying down a credit card.
Credit Report Investigations
Making the credit reporting bureaus investigate items on your credit report is something they are required to do by law. Take note of everything that looks bad on your reports with the exception of accounts that are one or two months late right now. Give your creditor a call on accounts that are just a month or two late, ask them to waive the late payment/fee that is associated with the late payment and many times the late mark will come off of your credit report, or prevent it from going on in the first place.
You’re going to be writing three letters - one to each of the credit reporting bureaus. In the letters, start off with your name/address/DOB and a sentence that basically says
“My credit report file number is (enter the file number of your report here)
“I request an investigation into the following accounts confirming the accuracy of all reported data:”
You’ll then list the creditor name and your account number (or the last few digits, whatever the report shows) for every account with negative information in it.
Sign/date it and ship it to the credit bureaus, here are the addresses you’ll need:
Equifax P.O. Box 740256 Atlanta, GA 30374
Transunion Consumer Dispute Center P.O. Box 2000 Chester, PA 19016
Experian P.O. Box 4500 Allen, TX 75013
Be sure to send these via certified mail in order to receive a tracking number. The bureaus will have 30 days to complete their investigation starting the business day after they receive your letter.
It’s also possible to dispute accounts online but for credit repair purposes you don’t want everything to be completely automated. A human may never see or touch your data if you file the disputes online, causing everything to be done automatically just from accessing databases. The creditor is supposed to actually conduct an investigation but it can be hard to prove whether they did or did not. Getting your letter into the hands of a human adds another step for the bureaus and your creditors to follow which can increase the chances that the negative information will fall off of your report.
After 30 days, you should be informed by the bureau what the investigation found. If there was an error, it will most likely be corrected. If they don’t hear anything back from the creditor, the account should come off of your credit report. No matter what, you will be entitled to see an updated copy of your credit report, even if you’ve already used your free copy from AnnualCreditReport.com.
While a removal due to an investigation or lack thereof may remove an account, there is always a chance that it might be placed back on there in the future.
Removing Collections Accounts
Collections accounts are placed on your credit report by agents acting on behalf of creditors. Debt collectors, especially shady ones, might try just throwing an account onto your credit report and hoping that you pay it off. This is referred to as “parking” a debt, which isn’t necessarily illegal, but in many cases a debt collector does not follow the law when doing this.
The FDCPA and FCRA come into play when trying to remove a collections account. There is a laundry list of rules that debt collectors have to abide by to legally come after you for money but the one many of them fail to follow involves giving you required written notices.
Debt collectors can call you before writing you but they are required to send you a letter detailing your debt within 5 days of first contact with you. If they fail to do that, it’s an FDCPA violation, same goes for failing to tell you that they are going to report negative information to a credit reporting agency regarding your account. Catching them doing this can almost always result in an offer to pull the account from your credit and possibly wipe out your debt depending on what you owe. You might need to talk to a consumer attorney about this however, but most should readily take you as a client since they get to charge their fees separately, which can quickly climb into the thousands.
If you’re learning about a collection account for the first time from a letter in the mail, you need to send them a debt validation letter to make sure that your right to dispute the debt stays intact. Even if you receive the letter a long time ago, you can still send the validation letter to get them to acknowledge the facts about the debt. A surprise collections account on your credit report, assuming it wasn’t added in the last few days, is almost always going to result in an FCRA violation for failing to tell you they are giving negative information about you and your account to a credit reporting agency.
Collection accounts stemming from a credit card company and some auto loans may be eligible for binding arbitration. Many debt collectors will drop your case immediately once you elect arbitration because it can easily cost them several times more than the amount of your debt. Consumers trying to repair their credit can use arbitration their advantage by electing it immediately with a debt validation letter, preventing a debt collector from suing. Most debt collectors will actually wait until you pay your portion of the arbitration fees ($200-250 max, $0 for California residents) before either reaching out to settle (which can result in a removal of the account from your credit report) or just dropping it entirely.
Some debt collectors will ignore arbitration demands, even if it clearly spells out the procedure for it in your original contract. When this happens, you can force it in small claims court, or pony up the $400 for a federal court case. Going either of these routes will almost always result in the arbitrator awarding you the fees that you had to spend up till that point in order to force the debt collector to the table, at the very least.
Other than electing arbitration, if a credit agency investigation concludes the debt is valid, you can write another letter demanding to know exactly how the investigation took place and who was in charge of the investigation. Sometimes the credit reporting bureau will respond back with the information, sometimes they will just drop the account themselves.
Dealing with Charge-Offs/Settled Accounts
Charge-offs and settled accounts are a tougher nut to crack as opposed to collection accounts. Most of these types of accounts will come from credit card or personal loan companies. Your local payday lender might go out of business within a couple of years, or may not be quite as diligent about records, but a major credit card company is going to have everything documented and readily available.
The above information about credit reporting investigations applies to these accounts as well, just do not be surprised if they tend to stick. Some credit card companies might remove your payment history from the account, which can help with your on-time payment percentage, but the line will still remain visible to others who pull your credit.
If you believe that they may have committed an FCRA violation, talk to a consumer attorney about starting a case against them. Like I said, even if you only get awarded $100 for the violation, your attorney might make thousands. Part of your agreement should mandate that they remove the entire account from your credit report, possibly in lieu of payment (to you).
As a last ditch effort, you can try writing goodwill letters to individuals high up the chain-o-command at the credit card companies. Most likely, you will get rejected, but you may be able to find someone compassionate enough to forward your letter to someone who can remove the information. It never hurts to try.
Statute of Limitations
New York residents only need to wait 5 years before negative information comes off of their credit report while everyone else has to wait 7 years. The kicker here is that most consumer debts have a statute of limitations of only 3-6 years (except Iowa and Rhode Island, both at 10 years) depending on which state you live in. The information can still stay on your credit report for the full 5/7 years, but the creditor or debt collector cannot attempt to collect the debt.
In these cases, when all else has failed, you can write a debt validation letter but be extra careful to not claim the debt as yours. Refer to the debt as “alleged” and make no mention of wanting to pay anything. At this late stage, the creditor or debt collector doesn’t have to respond to your letter, if that happens, there isn’t much you can do. What you’ll often find with validation requests though is the creditor will include a letter stating that this debt is “valid” and giving you a phone number to call to discuss payment options, along with documentation proving the debt is valid. Count yourself lucky if this happens because you’ve got them on (probably multiple) FDCPA violations. Get your attorney and get the process started, just be sure one of the terms of your settlement (debt collectors will almost always settle if they know they will not win in court) is to have the negative information take off your credit report.
One important thing to note here is that the FDCPA only applies to debt collectors, not to the original creditor. A Capital One account that defaults and is sold or assigned to a debt collector means the debt collector needs to follow the FDCPA. If Capital One wanted to keep the debt themselves, they wouldn’t have to follow FDCPA guidelines.
Federal Student Loans/Tax Liens - You can dispute, validate, send goodwill letters, and argue until your face turns blue, but these types of cases are going to stay on your credit report until they are paid. Once you’ve paid a tax lien, there is a form, called “Form 12277” you can file with the IRS to get the process of removing it from your credit report started. Federal student loan information will stay on your credit report for 7 years after it is paid off.
Court Judgements - Disputes may work with court judgements but you will still owe the money they say you owe. It can help your credit score but pay off the judgement or they will still have grounds to put it back on your credit report, this time in the form of a collections account. It may also be possible to have the judgement vacated, which will remove it from your credit report, but that only happens in certain circumstances
Goodwill letters for late payments - I explained that goodwill letters are a last resort measure if nothing else works for accounts. You may have slightly better luck with a goodwill letter if you just want late payment information removed, though there is a much better chance than not you will still be rejected.
Being added as an authorized user on someone else’s credit card - This can help your credit score in the short-term but any lender taking a close look at your credit will see exactly what you are trying to do.
Hard Inquiries - For the most part, don’t worry about them. Shopping around for rates is expected and your credit score might take a slight dip after 30 days that it will recover from within a few months.