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Credit repair: How to fix a shabby credit
report
By Elif
Armbruster • Bankrate.com
How to polish up your credit report 'til it shines.
William Redding was 35 years old when he strolled
into a bank to apply for a home mortgage. Heretofore, the most contact
he had had with a bank was his ATM card, and he was in for a big
surprise. After several agonizing weeks of forms, phone calls and
credit checks, his request for a mortgage was denied. Why? Two simple
words: bad credit.
In Part
I of this two-part piece on credit, you learned what your credit
report is all about and obtained a copy of it so you could learn
where you stand. That would at least warn you of potential bad news,
like Bill Redding received. In this second part, we'll tell you
what to do if you receive an unpleasant surprise.
But first, what exactly is bad credit? According
to Dave Mooney, the public relations director for Equifax, the nation's
largest credit bureau, the definition varies from bank to bank.
Some banks will deny you credit if you have three late credit card
payments; some won't even bat an eye at that. "Unfortunately,
credit, and whether yours is good or bad, is highly subjective,"
says Mooney.
To determine where you stand, you'll have to
take a look at your report and call a few banks in your area. Tell
them what kind of record you have, and ask your questions. You may
be surprised to find that what is acceptable to one is laughable
to another. If it turns out that neither you nor the banks are happy
with your credit report, there are a few steps you can take to improve
your chances of someday becoming a homeowner.
First of all, be sure all of the information
in your report is accurate. Even corporations make mistakes. If
you spot an error (say, for example, your health club has reported
that your payments are four months past due when in fact your membership
expired four months ago and you didn't renew), call or write the
credit reporting agency and inform them of the error.
If the company cannot confirm that their information
is correct, they are obligated under the Fair Credit Reporting Act
to remove the information from your report. If they can confirm
it and you disagree with their findings, you can write an explanation
of up to 100 words explaining your side of the story. This information
will become a part of your credit report and can prove very helpful
when the time comes to sit down with a loan officer.
If the negative information in your report is in fact
true, only time and improved habits can change that. Past due balances
remain on your report for seven years; bankruptcies for ten. Most
banks, however, look for a pattern of payment rather than focusing
on one-time or seldom occurrences; so if you start paying your bills
on time and keep doing it, a few late payments in the past should
hardly stand in your way.
Improvement pays
"An improved pattern is significant,"
says Ken Scott of the National Foundation for Consumer Credit, in
Silver Spring, Md. "If you start out as a tardy 22-year-old,
but become a responsible 32-year-old, that counts in your favor."
If you can't afford to pay your bills in a timely
manner, don't fall into thinking that if you don't pay them, they'll
go away -- because they won't. Call up the people you owe and tell
them you simply cannot afford to pay the designated amount at this
time. Most offices are open to setting up a payment plan. In the
case of credit cards, pay the minimum amount due every month. The
act of consistently paying your bills on time, even if you are paying
just a little each month, will help you to build a good record over
time.
And remember, there is always room to improve.
Take the case of Mark Abrams: When Mark was 22 years old, he filed
for bankruptcy. He had simply charged too much on several credit
cards and had no way of paying them off. Last year, when he turned
32, his record was finally cleared. Several months later, thanks
to the impeccable record he established over the last decade, he
was granted the $80,000 mortgage he applied for.
-- Posted: Aug. 17, 1998
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