Tens of thousands of Americans have damaged their credit ratings. They’ve
misused or abused their credit cards. They’ve been thrown into financial
distress by long periods of illness or unemployment. Whatever the reason,
they suffer from bad credit, and must find a way to repair it to return to
a normal life.
If you’re among this group, don’t despair. It’s hard work to rebuild your
credit rating, but it can be done.
'First you need to understand how credit works and then you need a plan,'
says Gerri Detweiler, a credit expert and author of 'The Ultimate Credit
What do the credit agencies say?
You also need to know what the credit reporting agencies are saying about
you. There are three principal credit-reporting agencies: Experian
(formerly TRW), TransUnion and Equifax. For a fee, typically about $8 to
$10, they’ll send you a report of your credit history, as their records
show it. You should review each of the three once a year to look for
errors and to find out what creditors are saying about you.
Stay away from ‘repair’ clinics
What you don’t need is a credit repair clinic. These so-called clinics
offer to help you clean up your credit by using loopholes in the law that
only they know about. They may also promise to remove negative information
from your file or to get you a major credit card. These are false
promises, according to attorney John Ventura, author of 'The Credit Repair
Some repair clinics may even get you into legal trouble by encouraging you
to distort the information in your credit file, or by helping you to
initiate a new file with a new address and federal identification number.
'There are no special tricks that these credit repair clinics know,' says
Ruth Susswein, executive director of Bankcard Holders of America. 'You can
clean up your credit report yourself.'
Here are five steps to credit repair:
1. Lock your cards away.
Don't close your accounts yet. If your credit rating has been damaged, you
may have trouble getting new cards. But stop using them. Your immediate
goal is to repair your credit rating and to get out of debt.
2. Figure out where you stand.
No one likes to focus on budgets and net worth statements. It's
particularly painful if you suspect your income is less than your debt and
that your net worth is in minus territory. Still, finding out the truth is
a necessary first step, just like stepping on the scale before you begin
to diet. It helps you measure your success.
You have a great deal of control over your budget and net worth. But much
of your credit record is actually controlled by others -- your creditors
and the reporting bureaus. Between 30% and 40% of these reports contain
errors, Ventura says. Clear those up first.
Ventura suggests that you write to the credit bureau detailing the errors
in your report and that you send your correspondence by certified mail
with a return receipt requested as you work to clean up your credit
report. That will provide you with a paper trail and help you remember
when to follow up.
Be as succinct as possible. Don’t be angry or accusatory. Provide back up
materials whenever you can. For instance, if you’ve paid off a bill and
received a letter from the former creditor acknowledging that the debt is
paid, send along a copy.
In your letter, identify problems such as:
'The credit file your company maintains on me states that my account at
Macy's is overdue. In fact, I have closed my account at Macy's and paid
off the balance. I am enclosing a letter from Macy's to support that.'
Tell the bureau that you want to have the problem investigated as soon as
possible. Ask to have a corrected report sent to anyone who has asked for
the report during the past six months for credit purposes and during the
past two years for employment purposes.
3. Devise a plan.
If you’re going to clear up your credit rating, you must begin paying your
bills on time. That means you pay at least the minimum balance on each
bill within 30 days. Determine whether you can do that. If you aren't even
close, consider credit counseling. If it's hopeless, you may want to
consider bankruptcy and a fresh start. Determine which course of action
you will take and stick to your guns.
4. Negotiate with creditors.
Nine out of 10 creditors will renegotiate terms with you if you’re having
trouble paying bills. Good candidates are gasoline companies, utility
companies, hospitals and doctors. Gasoline cards are usually not reported
to credit bureaus until you’re 90 days late, and the others don't
generally show up on credit reports unless the bills are sent to a
collection agency. Write a letter to these creditors describing your
problem and requesting a reduced payment schedule. Then stick to your new
5. Add pertinent information to your credit file.
Your credit report may be damaged as much by the information that is
omitted as by the negative information that is found there. Creditors are
not required to report information to a credit bureau. But you are
entitled to add information that you feel will help your rating.
The law says you are allowed to write a letter of up to 100 words
involving any credit dispute and that the agency must provide to any
creditors who ask for information. That might include the details of loans
that you paid on schedule, active accounts where you have a good record,
salary increases at your job, and information about your mortgage, car
loan or the settlements of disputed bills.
Ventura suggests that you write to the bureau, enclosing a copy of your
credit report and the information that you would like added to the report.
Also include information, such as account numbers, that will allow the
credit bureau to verify it.
Negative information can be maintained on your report for seven years;
bankruptcies for 10 years. But many creditors weigh new information more
'How much you pay is not as important as how often you pay,' Detweiler
says. 'It's important to establish a record of paying bills on time and to
stick with it.'
Claude THOMAS, Realtor©