Credit Basics
Step #4: Handle Negative Information
You may find that your credit report contains information that is negative, but is basically correct. If this is the case, here’s what you can do:
#1: Wait It Out
As the negative information becomes older, it will be less important.
This is especially true if it is more than two years old. (Note, that if
you have unpaid tax liens or judgments they must be paid before the
clock will start ticking for them to be removed from your report).
Waiting for that information to become older can help. It’s a more effective strategy if you also actively rebuild good credit (see below).
#2: Dispute It
Remember, if the credit bureau can’t confirm information that you
dispute, it must be removed. If any of your account information is
incomplete or inaccurate, you may dispute that item. If the
information is old, the account has been sold, or the creditor is
simply too busy, it may simply be removed when you challenge it.
There’s no guarantee that this will happen, but it does sometimes work.
#3: Rebuild It
You won’t build better credit without positive credit references on
your file. It’s not important to carry debt to build better credit, but it
is important to maintain good credit accounts. If your credit report is
damaged and you are having a hard time getting credit, consider a
secured credit card. This is a major credit card that requires you to
put up a security deposit with the issuer. You use the card like any other major credit card and, if you pay on time, you can eventually
get your deposit back.
Ideally, your credit report should show three or four active accounts (including credit cards, a car loan and/or a mortgage) paid on time each month. If you use credit cards to rebuild your credit, it’s perfectly fine to pay the balance in full each month and avoid interest charges. To shop for a secured credit card, visit: www.CardRatings.com.
#4: Ask for A Favor
If you fell behind on your bills due to an unexpected illness, a short
period of unemployment or some other crisis; and you were only
late a few times in an isolated period; and you’ve paid the account on
time for at least three months since, you may be able to get the lender to remove the older negative information. This is called re-aging the account. It may take a few phone calls to find the right
person who can help, so be patient!
#5: Understand These Special Situations
The following are some common situations people encounter when
trying to repair their own credit.
Bankruptcy: When you file for bankruptcy, your credit report will list the bankruptcy as well as individual debts that were included in the bankruptcy. Those individual accounts are not removed from your credit report. However, if you have successfully completed your bankruptcy, any accounts that were included should reflect a zero balance.
Collection Accounts: If you owe money to a collection agency, you may be able to negotiate to have it remove the item in exchange for payment. They aren’t required to do so, however, and they usually cannot alter the information about the original account before it was sent to collections. Paying off a collection account in itself will usually not significantly boost your credit rating, simply because collection accounts are automatically considered negative.
Co-signers: When you cosign an account with someone, you agree to be responsible for the entire balance. If you have negative accounts on your report that you cosigned for, you may want to talk with the issuer about a payment plan. Try to negotiate a better rating on that account in exchange for payment as well.
Credit Counseling: A credit counseling program can help you get back on track by negotiating a payment plan with reduced interest and/or fees with your creditors. Credit counseling can improve your credit rating if you work with a reliable agency because you’ll reduce your debt, and many creditors will remove late payments just prior to when you entered the counseling program if you stick with it.
Divorce: If you divorce, you and your spouse may have joint accounts that you each agree to pay. As long as a joint account remains open or has a balance, you are both responsible to the lender regardless of what the divorce decree says. Make every effort to close joint accounts from future charges, and to refinance any balances in the name of the person who will be paying them off. If that’s not possible, at least monitor the payments to be sure they are being made on time.
Medical Collection Accounts: If an account was sent to collections due to medical bills that you believe should have been paid by your insurer, try to get the collection agency to remove them if you pay the bill. If you had substantial medical bills, you may want to request written proof of the debt and even consider hiring a company that audits medical bills for overcharges in exchange for a percentage of the money they save you.
Old Accounts: You may find old accounts you don’t use anymore still listed. Even if an account is paid off, it may remain on your report for seven years if the information is negative, or indefinitely if it’s neutral or positive. Fair Isaac Company, creator of the popular FICO credit scores, recommends that you don’t close old accounts because doing so may hurt your credit score and won’t help improve it.
Student Loans: If your federally insured student loan is in default and you make twelve consecutive payments on time to bring it out of default, the previous late payments will be removed. Visit and click on Additional Resources for a link to a company that will consolidate defaulted student loans.
Warnings!
There are companies that prey on people with damaged credit ratings. Be very careful before falling for one of these scams:
Guaranteed Credit Cards: If you see offers for “guaranteed credit cards regardless of your credit,” beware. There are two variations on this scam. In one, the issuer makes it sound like you’ll get a major credit card but instead you get a plastic card that only allows you to purchase merchandise from their catalog. In the second, you may get a $300 credit line, but the company will charge about $275 in various fees. You’ll start out with a big balance when you haven’t purchased anything! Unlike a secured card, those $275 in fees will never be refunded to you. If you need a major credit card, shop for a secured card at www.CardRatings.com.
Advance Fee Loan Scams: Some lenders will advertise that they can guarantee you’ll get a loan for an upfront fee that can range from at little as $19 to several hundred dollars. Don’t be duped. Don’t pay a fee upfront to get a loan before you’ve been approved. According to the Federal Trade Commission, it’s fraud and it’s against the law.
Credit Repair: Companies may promise that for hundreds or even thousands of dollars, they can clean up your credit. Think twice before spending your money on a credit repair program. Many times these programs cost hundreds of dollars and their techniques may actually be illegal! For example, some companies will tell consumers to get an Employer Identification Number (EIN) which is the same number of digits as a Social Security Number. They’ll then tell consumers to try to get new credit using that number. The goal is to establish a brand new credit file. Obtaining an EIN for that reason, however, is not legal. In other scams, these companies will sell the identities of people who have died, and encourage consumers to use that information to get new loans. That’s a form of identity theft, which is a federal crime. According to the Federal Trade Commission, you should beware of companies that:
• Want you to pay for credit repair services before any services are provided.
• Do not tell you your legal rights and what you can do yourself for free.
• Suggest that you try to invent a “new” credit report by applying for an Employer Identification Number to use instead of your Social Security Number.
• Advise you to dispute all information in your credit report or take any action that seems illegal, such as creating a new credit identity.
