How to fix a shabby credit report -- Part I
Elif Armbruster, Bankrate.com

Polish up your credit report 'til it shines.

Here's a scenario from my personal nightmare file. It begins innocently enough with my desire to buy a house. Once I've found one, I go to a bank to inquire about receiving a loan. I am subjected to the usual battery of questions, forms and credit checks. No problem, I think -- everyone goes through this. Then the unexpected happens: I don't qualify. My bank turns me down because, well, when examining my credit reports they find that I have a history of paying bills late, and, in some cases, of not paying them at all.

This is just a bad dream, but it's a reality that's all too possible. With over one million individuals filing for bankruptcy annually, and many individuals defaulting on their student loans, banks have got reason to say "no" more often than they used to. And they do -- all it takes is a glance at your credit report for a bank to balk.

"Many people assume that if they've paid their student loan late a few times it never shows up, or that if they ignore their bills, they will just go away," says Dave Mooney, a spokesman for Equifax, the nation's largest credit bureau. "They don't. They are all there, and your credit report tells the story." And, contrary to what you may think, your credit report will come back to haunt you if you aren't careful and responsible.

Take that dentist's bill from 1992 that you just didn't feel like paying -- you ignored repeated requests for payment, even the collection agency's, thinking one day you'd move and they'd never find you. Not in today's world. "You will be tracked anywhere and everywhere on today's computer systems," says Gail Merrill, director of education for the Consumer Credit Counseling Services, a nationwide agency that offers advice on how to maintain good credit. For more information, call (800) 388-2227. "Don't assume you can hide from unpaid bills," she adds.

Credit is a privilege

If this sounds scary, it should. Credit is a privilege; the better you treat it, the more you are entitled to it. Think of it this way: Would you lend money to someone who you knew never paid you back on time, if at all? Conversely, you'd lend in a hurry to the person who paid you back on the early side with interest -- because that person allows you to make money reliably. That's exactly how a bank looks at you -- either as a good or bad customer.

In order to keep your report as clean as possible, you need to know what's on it -- and it's pretty impressive. First of all, each of the three largest credit bureaus, Equifax, Experian and Trans Union, will together list every credit account you've ever had, be it at Macy's, on a credit card through your bank, an auto loan or student loan -- as well as any account that's gone to a collection agency, including those for regular past due bills, like the doctor's. Credit reports also include each payment you've ever made on each account, including a notation on its timeliness: "1" for "paid as agreed"; "2" for 30+ days past due; "3" for 60+ days past due; and so on, up to "9" for "charged off to bad debt," the worst mark you can receive.

Also, noted on your credit report are bankruptcies, liens and judgments. Credit bureaus do not track checking, savings or brokerage accounts.

What this means is that the single most important thing you can do to maintain a record of excellent credit is pay your bills on time. If you can't afford to pay the balance on your credit card (or cards), keep on top of the minimum amount due -- often as little as $10 or $20 a month. This alone will keep your report in good shape.

If you are falling behind on a particular bill, take a direct and proactive approach to the situation. Call the person you should be paying and explain that you are temporarily broke and need to set up a payment schedule. Virtually every doctor or student loan organization will agree to a monthly payment plan that suits your budget. Keeping on top of your payments this way, even if the amount you are paying each month seems minuscule, will keep your record in good stead. That's what you want.

Before you abandon all hope, obtain a copy of your credit report from each of the big three credit bureaus. Equifax's Mooney recommends getting all three, since different banks report their information to different bureaus. If you are dismayed by what you find, remember that it's never too late to start paying your bills on time. In the next installment, we'll talk more about putting the final polish on that report.

-- Posted: Aug. 7, 1998