In today's world, credit is essential. Most of us use credit almost every day without even thinking about it: credit cards, car payments, house payments, etc. . Unfortunately, most people don't give their credit rating much thought until they run into trouble with it. Having a bad credit rating affects far more than your ability to get a loan: you will also have problems obtaining any kind of credit at all - you'll no longer be able to get store financing, you'll pay deposits on phone lines and other utilities, and face problems renting property. It's essential to take steps to repair your credit as quickly as possible. Here are some tips for credit repair:
Get Your Credit Report
This step is crucial - all credit information is reported by banks and the like to credit bureaus, who in turn hold the key to credit repair. Most people never consider obtaining their credit reports until they are attempting credit repair, but it's always a good idea.
In most cases there should be no charge to receive a copy of your credit report - you simply have to request it (usually in writing and accompanied by photocopied ID). When you are turned down for a credit card or loan, the company must state which credit bureau reported you as having bad credit, and you can then request a report from this bureau. Credit repair begins by taking a detailed look at your credit report. Look for any inaccuracies - in some cases there can be mistakes on your file, or your credit information can get confused with someone else with the same name. Many people are surprised how often a company reports a missed payment by mistake.
If you find any inaccuracies, you can have your credit repaired by requesting, in writing, that the credit bureau investigate the disputed items. If you have any supporting documentation, include it, otherwise simply state where the confusion is and request that it's looked into. This benefits you in two ways: first, if the credit bureau can not verify the information you are disputing, by default it must be removed from your file; second, if the bureau doesn't respond to your request for an investigation within 30 days, the information in dispute must be removed.
If it turns out that your bad credit is the result of a mistake, going to the credit bureau is usually all you need to do for credit repair. Keep in mind when requesting your credit report that many credit bureaus will make the process seem more difficult than it is, as in terms of man hours it is not in their interests to be responding to many credit report requests.
Contact Creditors
Once you have taken a look at your credit report and determined that it is accurate, the next step in credit repair is make contact with the creditors that you have delinquent accounts with. You have to deal with these accounts as soon as possible in order to repair your credit successfully.
In many cases, the top priority for the creditor will be to recover as much of the receivable as possible. Many people are surprised how accommodating they can be in terms of arranging a payment process: in many cases the creditor will eliminate the interest, or even lower the bill itself it return for immediate payment. If you can't pay right away, propose a payment plan to the creditor that you can stick to - creditors will be accommodating to most payment proposals as, again, their primary interest will be in recovering the debt.
Remember, of course, that the whole reason you're doing this is for credit repair: under no circumstances should to commit to a payment plan with your creditors that you won't be able to meet - it will only make problems much worse down the road. If a creditor has had repeated problems with a customer, it's unlikely there will be much trust in the relationship, and they probably won't want to help you out. Instead, pick something you can stick to and explain you financial situation to the creditor. By doing this you can often achieve credit repair quite quickly.
Try And Circumvent The Collection Agency
The final and worst step that a creditor will take is to sell your outstanding debt to a collection agency. In terms of credit repair, this is basically the worst thing that can happen: it means whomever you owed money to deemed their chances of recovering it so low that they we're willing to lose some of the debt. In most cases the creditor sells the debt to the collection agency at a heavy discount, often half the amount owed.
When a debtor had sold your loan to a collection agency, they have "written it off" and created the lowest possible mark on your credit report. If this happens try and act as soon as possible after being contacted by the collection agent. Before you negotiate with the collection company, talk to your creditor. See if the creditor will remove the "write off" mark from your credit history - this is something they will do sometimes, in exchange for immediate payment. The basic idea is you want to do whatever you can to get your debt out of the hands of the collection agency and back in the hands of the creditor - in other words you want to clear the debt with the creditor, if at all possible.
If your creditor is not interested in negotiating payment, you're stuck with the collection agent. The collection agent is likely going to take a very intimidating and threatening position, and will usually imply that they are willing to take you to court. The two points you should keep in mind is that the collection company bought your debt for less than the debt's amount, and it's unlikely they will take you to court. You best solution is to offer to make an immediate payment for less than the actual balance of your debt. Most companies are going to accept this - they're usually making a profit on any payment that's more than 50% of your debt, and by offering to pay immediately you allow them to close your file and spend their man-hours elsewhere. When dealing with a collection agent, only offer full payment as a last resort.
Look Into A Secured Credit Card
Credit repair can be a slow process, and you may find yourself building your credit back up bit by bit over a long period of time. A good place to start is with a "secured" credit card. These cards are issued by companies that usually target people with bad credit. Unlike a regular credit card - for which you will be no doubt be turned down for if you have bad credit - a secured credit card usually requires that you give an initial deposit equal to the card's credit limit. In other words, you give the company $500 for a card with a $500 credit limit, and they reserve the right to use that deposit against any balance if it remains outstanding for too long.
From the issuer's point of view, your bad credit won't matter because they are assuming no risk: you're never going to owe them more money than you've already given them to start with. From your point of view, secured cards are far from ideal, but if you have bad credit, and need to engage in credit repair, you don't have any choice. Precisely because you don't have any choice, secured cards are usually accompanied by annual fees that regular credit cards are free of.
Once you have a secured credit card, use it sparingly but regularly and make sure to make all your payments on time. By doing this over a long period of time you will slowly repair your credit rating, and gain back the trust of creditors who have refused you in the past.
Consider A Company That Specializes In Credit Repair
If you find that none of the above things are working for you in terms of credit repair, consider going to a company that specializes in the process. Many of these companies will offer to "clean up your credit record" for a fee. While the services of a credit repair company can sometimes be useful, depending on your situation, you must be very, very careful to avoid scams and read all the fine print: in most cases, there is nothing the credit repair company will do that you are unable to do yourself - but if you don't have the time or resources to do it, it might make sense for you to hire a company.
The basic strategy of most credit repair companies will be to encourage you to challenge absolutely everything on your credit report with your credit bureau. The idea is to inundate the bureau with more requests then they can respond to in a 30 day period, because remember: if the bureau can't provide documentation for something on your file in 30 days, it must be removed. It is questionable, however, how effective this really is: although the bureau must remove items within 30 days if they fail to document them, in most cases the companies will continue to investigate the claims, and when they eventually do find the proper documentation the items will be added again.
Whatever you decide in regards to a credit repair company, remember to look over the offer carefully. Also be aware that credit repair companies cannot legally accept payments until services are fully rendered. They are also bound to clearly outline all payments and terms.
