How To Repair Your Credit On Your Own

January 09, 2018

As we embark on a new year, one of the top goals I am hearing about is improving one’s credit. If this is one of your goals, just remember that as you look for help with this goal, that all that glitters is not gold.

One of my cousins came to see me excited over a meeting she recently had. She was excited because she had just met with a credit repair company that promised that they could get all of the negative credit items taken off her credit report and could get her score high enough so she could buy a home.

Owning your credit mistakes

Knowing that my cousin was not the most fiscally responsible person in the world, I suspected most of the negative information on her report was hers. I told her under most circumstances, no one can remove negative information that is accurate — if you did the deed, you owe the money.

A shady plan

So I asked her how the credit repair agency was going to do this. She outlined the plan they gave her, which is almost a textbook example of how to know when you should run from a credit repair agency. Here’s what told me that this plan was a scam:

The red flag that should send you running

In order to have the negative items removed from my cousin’s report, they told her that they were going to report her negative debt as fraud. Which is ironic, because by doing this they are committing fraud. I told her that this is a lie, it’s illegal and all a creditor would have to do to disprove the fraud claim is to go into her closet, which looks like an exclusive shopping mall, to know that she is responsible for every purchase.

Red flag #2

She was also told to get an Employer Identification Number from the IRS and to use the Employer Identification number instead of her Social Security number when applying for credit. This is also fraudulent. I told her that unless she wanted to live the “Orange is the New Black” life, she probably shouldn’t try that move either.

Once she realized that she was basically being asked to lie, which she knows is wrong, she asked if there are credit repair companies that aren’t scams. I told her that yes, there are legitimate credit repair agencies out there, but there is nothing that they can do for you, if you aware willing to put in the effort, that you can’t do for yourself.

How proper credit repair works

Obtain your credit report. The first step is to review your credit report from the three main credit reporting agencies. You can obtain your credit reports for free from all three credit agencies by visiting annualcreditreport.com

Look for inaccuracies or errors. Review each of your reports for information that is inaccurate, incomplete or contains information that should not be reported. Check out Nolo’s credit report checklist for information that should not be on your credit report.

Dispute actual items that are incorrect. If you do find something wrong, you can dispute those items yourself online at each of the major credit reporting agencies’ websites. Experts recommend also sending a detailed letter to the credit bureau with the error, as well as the creditor listed, telling why the information is wrong with the evidence to back up your claim. Under the Fair Credit Reporting Act, a credit reporting agency has to respond to every dispute it receives within 30 days.

Check your benefits for help. Consider contacting your EAP or legal benefit program at work to see if you are eligible for free legal services to help you clean up your credit.

Take care of other detrimental items. If your credit is bad due to legitimate items like past-due bills or high credit card balances, then the solution won’t be as simple and will require a little more discipline and follow-up.

For past-due accounts and items in collection. Once you’ve verified you actually owe the money in collection, follow the CFPB’s guidance on what steps to take to negotiate a settlement.

For high credit card balances. First, call your card company and ask for a limit increase. BUT DON’T USE IT. What you’re trying to do is decrease your credit utilization, which will give your score an immediate boost. If you’re maxed out, an increase probably won’t going to get you all the way to where you need to be for your best score, so it’s time to make a plan to pay down the cards, starting with the accounts that have the highest utilization. Then stick to it.

It won’t be easy, and it will take time, but with a little bit of work you can clean up your credit report on your own, without having to worry about scams.

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DIY Credit Repair

July 07, 2015

One of my cousins came to see me excited over a meeting she recently had. If you know my cousin, she gets excited over air so I always have to proceed with caution every time she has wide eyes and a high pitched voice and looks like she is about to do a cartwheel. She was excited because she had just met with a credit repair company that promised that they can get all of her negative credit taken off her credit report and can get her score high enough so she could buy a home. Continue reading “DIY Credit Repair”

How to Recover From a Credit Disaster

November 21, 2014

During one of my recent conversations with an employee, he was very disturbed by how much a bad credit score has impacted his life.He said that his credit score has caused his car insurance premiums to increase, he thinks it is hindering his job search (he may have a point because it is something that employers consider) and his girlfriend does not want to become his fiancée or wife until he shows significant progress in this area. So, he was very happy to have some ideas on how to make progress on repairing what was a very broken part of his financial life. Continue reading “How to Recover From a Credit Disaster”

Credit Score Myths That Drive Me Crazy

January 18, 2013

When I meet with people who are dealing with building credit for the first time or rebuilding/repairing their credit after some financial misadventures, we often talk about the components of their credit score and how they can make an impact on that score. Fairly often, someone will say “I have heard…” and then tell me something they’ve heard about credit scores. After hearing the same “I have heard” items or myths repeatedly, I thought it might be a great time to address a few of them so that you can start the new year with a few facts instead of myths. Continue reading “Credit Score Myths That Drive Me Crazy”

How to Handle Old Debt and Debt Collection Agencies

January 25, 2012

With identity theft and fraud being such common threats, it’s important to exercise caution in every facet of your financial life. You likely know not to give out your social security number to anyone you don’t trust, nor should you ever invest in any get-rich-quick work or investment schemes. The list goes on.

If you have debt issues, you may be further at risk of having your identity or financial information stolen. You may also be pressed for payment for a debt for which you are, in fact, not liable, despite what a debt collection agency may say. If you have any old debt or are faced with the hassle of dealing with a debt collection agency, there are a number of ways you can deal with the situation.

Monitor Your Credit

Monitoring your credit is very important to not only avoid accruing debt, but to check and see if you have any old outstanding debt that is weighing you down. Be sure to review your credit report and continue to check it on a regular basis.

Forget about the companies that want to charge you a fee for this service – you can request a free copy of your report once per year from all three credit reporting agencies via AnnualCreditReport.com. If you have any debt from the past seven years, this is where you will find it. Any debt older than seven years should not appear on your credit report.

Know the Law

It is important to realize that there is a statute of limitations on old debt, which varies by state. Usually, it ranges from three to six years.

Next, understand that if you do have old debt, the collection agency must send you a written notice explaining the amount of money you owe and to whom. If you respond to them within 30 days to dispute the debt, they cannot contact you again until they verify the debt. Send your response via certified mail and keep copies of all correspondence.

Know What Debt Collection Agencies Cannot Do

Here is a list of tactics that debt collectors are not allowed to employ:

Call before 8am or after 9pm
Use obscene language
Call you at your place of employment after you ask them to stop
Falsely claim to be someone else (such as a lawyer or someone associated with law enforcement)
Threaten to have you arrested
Continue to harass you after you’ve asked them to stop
Talk with friends, family, or professional references concerning the debt – they can only talk to you or your lawyer
Threaten you with wage garnishments unless they have the authority to do so (check with your state guidelines)
Threaten to sue, unless it is allowed in your state – in some states, suing is not an option

Hypothetical Situations

Here are four hypothetical debt situations and how to handle them:

Debt that is older than seven years and outside the statute of limitations: There is no liability here whatsoever. Due to the statute of limitations, no collection agency can come after you for payment, and it should no longer be included on your credit report. If it is, dispute it and get it removed.
Debt that occurred within the last seven years but is outside the statue of limitations: You may want to consider settling this debt to have it removed from your credit report. However, before you pay the entire amount, consider negotiating a settlement with the collection agency by offering to pay back a percentage of the total owed. However, realize that if you opt for a settlement (rather than paying the debt in full) this will more significantly hurt your credit score.
Debt that is older than seven years but is not outside the state of limitations: This is a very rare occurrence. Such a debt will no longer have an affect on your credit rating, but you still are exposed regarding collection agencies. Use your best judgment here as to whether you should pay off the debt in full or via a settlement.
Debt that occurred within the last seven years and is not outside the statute of limitations: Pay this debt in its entirety if you have the ability to do so. It is damaging your credit score, and collection agencies are legally authorized to come after you for it.

Additional Tips

If you are ever contacted by a collection agency, say as little as possible over the phone, and just hang up if anything makes you uncomfortable. Never agree to pay back the debt (even verbally), and do not acknowledge the validity of the debt over the phone. If you do either one of these, it could actually reactivate the debt and put you on the hook for the amount owed.

If you do get taken to court over an old debt, you must show up in court, regardless of the validity of the debt. Not showing up could result in a claim against you.

Finally, keep in mind that older unpaid debt cannot hurt you nearly as much as new or recent debt. If you have debt issues, focus on the more recent ones.

Final Thoughts

No matter the age of your debt, there is always the moral obligation to pay it back. You can address this issue as you wish; however, I would not suggest that you avoid paying back any valid debts in your life just because there is a loophole. But remember that there are many predatory collection agencies out there that may come after you for “zombie debt” that you do not technically owe.

Do yourself a favor: If faced with the issue of old debt, educate yourself. Know the ins and outs of the entire scenario before making any final decision, and do what’s best for you.

Do you have any old debt horror stories? What are your tips for dealing with collection agencies?

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