Weve all seen them. "Send me 99.95 and Ill fix your credit and you can get a one million dollar credit card tomorrow." Ok so I am being a little dramatic. This article is to give you some insight into repairing your credit. It is not meant in any way to be legal advice. We will discuss several things in this article such as how credit works, paying or settling debts, credit repair companies, and establishing new credit. Before we begin I want to share a few things. I was a collector for almost 10 years until bad health forced me to leave the profession. I have also had my credit messed up by a bankruptcy after my son was hit by a car and had over million dollars in medical bills. Yet within 18 months I had purchased a new car, a home, had credit cards and some other accounts. So you see credit can be damaged but it can be repaired.
Before you can fix your credit report you have to know what is on it.
www.annualcreditreport.com
www.equifax.com
www.transunion.com
www.experian.com
Some of the bureaus have an online score calculator that will allow you to see how your credit score will rise if you pay a debt off, or begin making payments. Check it out and become familiar with it. Although there are 3 credit bureaus, and in a perfect world they would all say the same thing, they may each have slightly different info. Review your reports to make sure there are noinaccurate entries.
When I was collecting I often had people say to me "My credit is ruined so why should I pay ?" After I explained to them how the credit bureau worked, and showed them that they could fix the damage they where happy to pay. Many people get behind on their bills, figure their credit is ruined and just give up and never pay the bills. So it reports bad to the credit bureaus and they never make any payments on them so it stays bad. Many think that if they get behind that they automatically cant get credit for 7 years. While it is true that it may report for 7 years so will any payments you make after the time the account went past due. It is similar to a stack of boxes. If the last box says bad then it lowers your score and all your future creditor can see is the bad box. But if you make payments after that it pushes the bad box down the line. The creditor can still see it but it has less importance. So even if you got behind or havent paid it for a long time either beginning to pay on it or paying it off or settling it will help your credit score.
I have often seen people who thought their credit was ruined and all they had was a few hundred dollars in unpaid medical bills or a small credit card. I advise people that they should just pay off small accounts either in full or by payments. In some case making payments on the debt may be better for your credit than just paying it off in full. The reason is that the credit bureau is really just a record of how consistently you make your payments. If the account isnt charged off and in collections then you are probably best to just make payments. If they dont update the bureau until it is paid for then by all means go ahead and pay it off.
If you have larger debts you may be able to settle the debt. If the debt is charged off and with a collection agency your chances are better. Why ? Because they get the accounts and they get a percentage of what if recovered. They like it when they dont have to spend a lot of time and money to recover the money. I have seen them accept anywhere from 80% down to 30%. It depends on the agency and the age of the account. BEWARE BEWARE. If you settle with an agency you still may hear about the debt in the future. Let me explain why. Then original creditor assigns it to the agency. You settle with them. The account is sent back to the creditor. The creditor isnt aware it was settled, just that the balance is lower. In some cases it gets reassigned to a secondary agency who is also unaware that it was settled. So they attempt to collect on the lower balance. If you settle a debt make sure you get documentation that it was a settlement. Make sure your credit bureau is updated to reflect that. Make sure you KEEP that documentation. If you are ever contacted by another agency in the future you will need that to prove that you settled that debt.
That bring us to credit repair companies. There are some that are legit and honest and some that are just a ripoff. Be careful. They will promise you that they will fix your credit, get you new credit, the sun will shine, the grass will grow and the birds will sing and the flowers bloom yada yada yada. They use the dispute process with the credit bureaus to do this and it isnt always effective. You can also do that for yourself. They may know a little more about it tho. If you use one I would find out how they plan to fix your credit, can they negotiate settlements for you, can they refer you to getting new credit established and most important, will they refund your money(less any actual expenses) if they fail to improve your score.
It is possible to establish new credit without going through the steps I mentioned. You can get secured credit cards. www.cardreport.com These cards do report to the credit bureau but they are secured. Typically they open an account for $250. The fees they charge usually come up to the same amount. So they arent really assuming any credit risk. But they will report to the bureau. Make your payments on time or ahead of time. Also pay more than the minimum. There are other variations of the secured card. The best one is one secured by a bank account since you arent just giving money away to get a credit card.
