I’m going to teach you how to fix your credit. I’m not going to share everything I know about credit scoring models or algorithms with you, but I will share the process. I’m doing this because I want you to know what you’re doing when you fix your credit. If you have bad credit and are a DIY type of person, this article is for you. I am going to cover everything in this article from A to Z.
The first thing you should do is check your credit for any inconsistencies. A total of 79% of credit reports have one error or another. Cases of mistaken or stolen identity, the same or similar names reported on the wrong report, incorrect amounts, duplicate accounts, and many other forms of errors reported on credit profiles abound. Check your credit report very carefully for inconsistencies like the ones listed above.
Once you’ve identified the errors you want to fix, it’s time to move on to the next step. You’ll want to dispute those items with all three major credit bureaus. Write a letter to each of the three credit bureaus explaining what you think is in error and ask them to remove the item reported in error from your credit report. Proper formatting is an important ingredient in ensuring your dispute is handled correctly. Credit bureaus will want to make sure you are who you say you are. For that reason, you should always submit your dispute letters with a copy of your driver’s license and a bill with your address on it (such as a utility bill). If you’ve recently moved, they may want to see additional verification, so include a pay stub, social security card, or W2 form.
There is no guarantee that disputing an item will result in the removal of that item from your credit profile. If the item is indeed reported in error, there is a high probability that it will be removed. Creditors have 30 days to validate an account that has been disputed, otherwise it is automatically deleted. If an item is validated but you’re sure it’s being reported in error, you can dispute the validation. This process begins by first requesting the documentation from the credit bureaus that the creditor used to validate the account. A good example would be if an amount is reported incorrectly. For example, if you paid a bill but it still reflects an amount due. In that case, obtain dated proof of your release from debt obligation to compare with the documentation used for validation, which may show that the validation is dated.
If you are unable to remove an item through the dispute process, there is a good chance that the collection agency or creditor will be more flexible and willing to negotiate after an item has been disputed, contested validation, or is currently in dispute. As a last resort, you may want to try to negotiate a settlement with the creditor; this is only if you are unable to remove the item by any other means. However, here are some basic rules that you should keep in mind. Again, if you are certain that the item is reported incorrectly or is not yours in its entirety; do not recognize the debt as yours.
The first thing you should ask for when the creditor answers the phone is for the agent to return to an unregistered line. He has the right to speak on an unrecorded line, and the agent will generally be happy to oblige. He or she will put you on hold briefly and return to a line that is not being recorded. Once they’re back online with you, tell them you’re calling about the account number (please provide account number). If you acknowledge ownership of the debt, that could reset the limitations status to 0 days from the last activity date. It’s important not to make that acknowledgment in case you can’t come to an agreement. It’s not uncommon for the deal to drop to around 40% or 40 cents on the dollar. Collections and profit and loss statements are released by themselves seven years after the last activity, while items written off in bankruptcy are released in 10 years.
Cleaning bad credit off your credit profile is the first step in establishing credit repair. The next step is to reestablish credit. Sometimes, when you make a lot of changes to your credit profile in a short period of time, you may see a drop in your credit score in the first month afterward. The reason for this is that while it removes derogatory items, it also removes transaction history. This is normal and will pick up in the following month, provided you have established some new business lines (credit account).
Those with perfect credit have multiple seasoned business lines that vary in type. Usually a couple of revolving accounts, one or two installment loans, and an amortized loan, such as a mortgage. The more experienced a business line is, the more weight it will have on your credit report. If you have the option to have a friend or relative add you as an authorized user on a seasoned business line, that will speed up the time period in which you can increase your credit score. However, with a clean slate, you should still be able to significantly increase your score in the coming months.
Open a couple of credit card accounts to get started. You’ll want to limit your visits to no more than 3 in any 6-month period. For that reason, it’s a good idea, if you have cash on hand, to start with secured credit cards. Secured cards come with a guaranteed approval and don’t require a credit draw, so you’ll be able to limit inquiries to your account. Another great option is Aarons Sales & Lease; they are the only rent to own company that I know of that reports to all 3 major credit bureaus. When establishing new credit, try to limit your new credit inquiries as much as possible.
After you set up a couple of new credit card accounts, make sure they’re open and active. You’ll want to use the cards to build a positive transaction history. At the same time, you’ll need to use them carefully to maximize your credit utilization. Never exceed 30 percent of your available balance, as that’s the sweet spot where your account is open and active while maintaining a large percentage of available credit. It’s a good idea to make one or two small purchases once a month and then pay your bill after you receive it in the mail to ensure it is posted and account activity is reflected on your credit profile.
There is much more that includes the information I have provided here. There are specific calculations we can make based on credit scoring models that allow us to estimate scores at particular intervals. However, to remain compliant, I never quote deadlines or give guarantees because there are always variables that could interrupt the work we are doing. The information provided here is more than enough for you to get out there and fix your own credit. There is nothing we can do in that regard that you cannot do yourself. You can follow the steps outlined in this article and fix your credit.
If you don’t have time to put the work into this process or would rather leave it to the professionals, we’re here to help. Northern Finance Group employs highly trained credit repair professionals and we are ready to work with you every step of the way. Our fees are reasonable for the high level of service we provide and we can ensure your credit reaches the heights you strive for. If you’ve been turned down for credit and need to repair your credit as quickly as possible, call us for a free consultation.