Best Practices in Credit Repair

At one time or another, most of us will 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 essential?

Having good credit allows us to enjoy the things in life that we may not be able to pay cash for. It's also essential 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.  

Good credit can help you in many other ways, like lower car insurance premiums, better employment opportunities, and a chance at homeownership. Good credit has its perks. When credit usage gets out of control, 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. After all, most of us are sorely undereducated in finances.  Too much debt can also destroy your credit utilization ratio.

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 types of negative accounts must be handled precisely to eliminate the bad credit altogether.

One of the first things you'll need to do is decide whether the account you owe - or if it's possible to get it deleted because it's inaccurate or false - somehow. 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 must prove an account is accurate or can't remain. This doesn't happen automatically. You'll have to initiate the dispute process and follow up. 

Collection accounts will be handled by validating debt, or VOD, as it’s often referred to. 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 never to pay a collection account in an attempt to tackle lousy credit. The collection agency will have their money, leaving you with a paid charge off. It's still a charge-off. You'll want to aim for the total deletion of the collection account from your credit reports. That is where the restrictive endorsement comes in. It will lay out the payoff terms so you can negotiate the credit rating in advance and have written proof after. 

Judgments are tougher, but negotiating 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, you can aim to negotiate 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 harmful.

While harmful in their own right, bankruptcies protect your credit reports. The creditors must reflect that in your credit reports once all your debts are wiped away in bankruptcy. The bankruptcy rating should be "included in BK" and not listed as currently due. The balances need to be wiped to zero. You'll need to initiate disputes with the credit bureaus to correct them if they're not. You may even get lucky if 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 rebuild it back up. Perhaps you've been forced to file for bankruptcy, which ruined your credit.

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

You'll probably have to start with a secured credit card this time. This is a slow and arduous process, but it's necessary.  You may get lucky, however, and the lender won't report that it's secured. It may 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 it’s a more significant 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, which can help you build up your payment history well.

It's not easy to ask someone to cosign a loan for you, so if you take this route, you must ensure 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 so that you won’t ruin their good credit.

What are my legal rights?

There are specific credit laws that protect you. 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 primarily known for violating consumers'’ rights when 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. Here’s a good article on debunking credit repair myths if you are confused about what is legitimate.

Where can I report abusers or fraud?

You can report if you've been trying with no luck to correct credit problems with the credit bureaus or collection agencies. 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 organizations like the American Collectors Association. You can also sue them in small claims court without hiring a lawyer.