Best practices for Your Credit Recovery

At one time or another most of us need credit. Building your credit is one thing but once it's been damaged you may need help fixing it. People don't always start off with ruined credit ratings. Life and situations can ruin a good credit score overnight. 

Why is good credit important?

Having good credit allows us to enjoy the things in life that we may not be able to pay cash for. It's also important in stimulating our financial system.  Good credit isn't something any of us start off with. There is no loaded credit report that you can build on. Building up your credit takes time. There are no shortcuts.  

Having good credit can help you in a number of other ways like lower car insurance premiums, better employment opportunities and a chance at home ownership. Good credit definitely has its perks. When credit gets out of control is usually when all the trouble starts.  

Too much debt, unpaid medical bills and loss of income can all quickly result in a ruined credit rating and worse; bankruptcy. Complete financial ruin all the way around. Dredging out of that can be a maze of confusion. Afterall, most of us are sorely undereducated in finances.  

How do I tackle my bad credit?

There are specific ways to handle negative accounts. Simply paying a charge off or collection account is a problem. It won't do much to improve your bad credit rating because the rating history is already poor.  These type of negative accounts have to be handled precisely to get rid of the bad credit altogether.

One of the first things you'll need to do is make a decision whether the account is one that you owe or if it's possible to get it deleted because it's inaccurate or false; in some way. Disputing negative accounts with the credit bureaus will be your initial step. This will keep you from simply paying something out of force. Credit bureaus have to prove an account is accurate or it can't remain. This doesn't happen automatically. You'll have to initiate the dispute process and follow up. 

Collection accounts will be handled through a method of validation of debt or VOD as its often referred. You'll make the collection agency prove the debt is valid first. If it is, you'll then use debt settlement to pay it in exchange for the collection agency deleting the bad mark.  This is often called a restrictive endorsement.

You should be warned to never simply pay a collection account in an attempt to tackle bad credit. The collection agency will have their money and you'll be left with a paid charge off. It's still a charge off. You'll want to aim for total deletion of the collection account from your credit reports. That is where the restrictive endorsement comes in. It will lay out the terms of the payoff so you can negotiate the credit rating in advance and have written proof after. 

Judgments are tougher to tackle but using either negotiations with the judgment creditor or asking a court to vacate the judgment would be most effective. Typically you ask for a vacated judgment when you can prove an improper service or something wrong with the judgment.  If you can't vacate or dismiss it then you can aim for negotiating for the judgment creditor to dismiss it himself in exchange for payment. A paid or "satisfied judgment" is not what you want. It's still negative.

Bankruptcies while negative in their own right do afford some protection when it comes to your credit reports. Once you've have all your debts wiped away in a bankruptcy, the creditors will need to reflect that in your credit reports. The bankruptcy rating should be "included in BK" not listed as currently due. The balances need to be wiped to zero. If they're not you'll need to initiate disputes with the credit bureaus to correct them. You may even get lucky and have creditors fail to respond to the dispute and the debts will be completely removed from your credit reports.  

How do I rebuild my credit?

Rebuilding your credit will take some effort. After you've tackled all the negative accounts on your credit you'll have to be patient to rebuilt it back up. Perhaps  you've been forced to file for bankruptcy and it completely ruined your credit.

Maybe you've been slammed with a myriad of medical bills that resulted in bad credit.  Starting a new credit history will be no different than how you built your credit to begin with. It will be tougher because you'll probably have a history of negative accounts like "paid collection accounts", "bankruptcy", "paid judgments". All of this shows a trail of how you managed your prior debts and it forms a first impression to potential lenders.

This time around you'll probably have to start off with a secured credit card. This is a slow and arduous process but it's necessary.  You may get lucky however, and the lender won't report the fact that it's secured. It may just look like a regular credit card account to anyone viewing your credit reports.

Everyday living expenses can also be reported to your credit reports to help you rebuild, but it's not a given. You'll have to ask your creditors if they'll report your payment history to the credit bureaus. It is not required as of this writing. With credit rules changing all the time, we may soon see our cable companies and landlords reporting monthly payments but we aren't there yet. 

Another good way to rebuild your credit is to have someone cosign for you. A car loan is best since its a larger and more difficult purchase than a credit card but it can quickly help you on the road to recovery.   Even renting furniture can be reported to your credit reports as an installment loan and this can help you build up your payment history in a good way.

It's not easy to ask someone to cosign a loan for you so if you take this route you need to be sure that all payments are made on time or you'll affect the other person's credit.  It would be a best practice to set up automatic withdrawals for a cosigned debt to make the other person breathe a little easier that you wont ruin their good credit.

What are my legal rights?

There are specific credit laws that protect you. Using the Fair Credit Reporting Act and the Fair Debt Collections Practices Act will be the most common laws to guide you. Creditors and credit bureaus have to abide by these laws. Debt collectors are especially known for violating consumer's rights when it comes to collecting debts. Since they buy most of these debts for pennies on the dollar they can be relentless in making a profit. You can protect yourself from abuse by leafing through the FDCPA.

Where can I report abusers or fraud?

If you've been trying with no luck to correct credit problems either with the credit bureaus or collection agencies, you can report them. Typically you'd file a complaint with the Federal Trade Commission and send a copy of the complaint to the creditor or credit bureau. The FTC allows you to file this complaint online making it very easy to do at ftc.gov.

You can also report abusive bill collectors to the appropriate organizations like the American Collectors Association. You can also sue them in small claims court without even having to hire a lawyer.