Credit repair FAQs
Credit scores affect many of today's lending decisions. Apartment
rentals, insurance rates and even employment can hinge on your credit
rating. Creditworthiness determines whether you'll qualify for competitive
interest rates or get stuck with high rates.
As credit scores become more important,
consumers are taking more notice of their three-digit numbers and
want to know how they can improve their credit.
Bankrate's experts Dr. Don and the Dollar
Diva offer advice for some of the frequently asked questions regarding
consumer credit counseling pay off the balances?
Can I raise my credit
score by closing inactive credit?
Should I subscribe
to one of those $99 credit report services?
How can I work with
my creditors to get the bills paid off?
Can I get lenders
to remove charge-offs from my credit report?
Should I negotiate
with a collection agency or the lender?
credit counseling help people get out of credit card debt by paying
off the balances?
A consumer credit counseling service will help
you get out from under credit card debt, but it's your money, not
their money, that gets the job done.
A credit counseling service will negotiate with
your creditors to arrange a repayment schedule and may be able to
lower the interest rate on your credit cards. Using a credit counseling
service can affect your credit rating because your creditors will
note that your bills are not being paid according to the original
That said, there is less stigma attached to
credit counseling than there would be to a bankruptcy showing up
on your credit report. Consider credit counseling if you can't figure
a way out from under your current debt load.
Remember that even though most credit counseling
services are nonprofit organizations, that doesn't mean that they
won't charge a fee for their services. Most agencies get at least
part of their compensation in payments from your creditors.
If you're considering using a credit-counseling
firm, you should interview at least two different firms, and review
their written contracts before signing any agreements to enroll
with a service. This FTC
site gives advice on the questions to ask in the interview.
Foundation for Credit Counseling can help you find agencies
in your area, or even counsel you online. There is also a professional
certification process that turns out Certified Consumer Credit Counselors.
Ask the firms that you interview about whether
their counselors have this certification, and if you can be assigned
to a certified counselor.
Can I raise my credit score
by closing out inactive credit accounts?
Lenders look at your credit report to see if
you are able to manage credit responsibly, but they also get a credit
score from one of the credit reporting agencies. These scores are
known generically as FICO scores. That's because the credit reporting
agencies use Fair, Isaac & Company to create their proprietary
credit scoring models.
A credit scoring model estimates your creditworthiness
based on the information in your credit report. Outstanding credit
lines aren't bad, but they can reduce the amount of money that a
mortgage lender is willing to loan you. That's because the lender
can't stop you from using those lines, and if you overextend yourself
you're less likely to be able to make the mortgage payment.
According to the Fair Isaac Web site, closing
accounts as a short-term strategy to raise your credit score is
not recommended. Here are some suggestions from that site for improving
your credit score:
- Pay your bills on time. Delinquent
payments and collections can have a major negative impact on a
- Keep balances low on credit
cards and other "revolving credit." High outstanding
debt can affect a score.
- Apply for and open new credit
accounts only as needed. Don't open accounts just to have a better
credit mix -- it probably won't raise your score.
- Pay off debt rather than moving
it around. Also don't close unused cards as a short-term strategy
to raise your score. Owing the same amount but having fewer open
accounts may lower your score.
- Make sure the information in
your credit report is correct. It won't affect your score to request
and check your own credit report. If you find errors, contact
the credit reporting agency and your lender.
They're looking at the total picture and you
should, too. One account isn't going to make or break your credit
score and limit your ability to get a mortgage. Look at all your
outstanding credit relationships.
One way to see where you stand currently is
a copy of your FICO score from Fair Isaac in partnership with
Equifax -- a credit reporting agency. The introductory price of
$12.95 is reasonable when you consider that in most states you're
charged $9 for a copy of your credit report and for $12.95 you get
both a copy of your Equifax credit report and your FICO score.
I often get solicitations
about having my credit report sent to me for an annual fee of $99.
Should I subscribe to one of these services or can I get these reports
Credit reports are notorious for their errors;
it's a good idea to review them at least once a year so you can
nip any problems in the bud. The three credit reports that matter
You shouldn't pay more than $9 for a single
credit report, and depending on your location and your credit history,
you may be able to get your credit reports for free.
The credit reporting agencies sell various services
to folks who want to keep their fingers on the pulse of their credit
ratings, or are nervous about identity theft. Visit their Web sites
to see what they have to offer -- and expect to pay less than a
Your FICO score is a credit rating produced by Fair, Isaac and Co.
It's used by most lenders to help them decide whether you're a good
credit risk. Fair, Isaac crunches the numbers from your credit report,
and spits out a score somewhere between 300 and 850. A low score
says you're a bad credit risk, a score of 750 or higher puts you
in the catbird seat.
Here are the factors considered when calculating
your FICO score and an estimate of how heavily each factor might
payment history (35 percent): bankruptcies, late payments,
past due accounts and wage attachments
of credit owing (30 percent): amount owed on accounts,
proportion of balances to total credit limits
of time credit established (15 percent): time since accounts
opened, time since account activity
for and acquisition of new credit (10 percent): number
of recent credit inquiries, number of recently opened accounts
of credit established (10 percent): number of various types
of accounts (credit cards, retail accounts, mortgage)
Visit the Fair
Isaac Web site for more information on what helps and hinders
your credit score.
How can I work with my creditors
to get the bills paid off?
I don't know what kind
of creditors you are dealing with, but the steps to dig yourself
out of debt should apply to most of them:
getting your financial house in order a high priority, and understand
it's going to take time, energy and organization.
a file folder for each creditor containing the following:
A record of the dates and amounts paid
on the bills.
A log of every contact you make or attempt
to make regarding the debt, including date and time; name
and title of person contacted; nature of contact (whether
you talked on the phone or left a message on a machine); summary
up a master list of everyone you owe money to. Include the name
of the lender, the amount, the interest rate and the minimum monthly
how much after-tax income you will have from your job and what
your bare-bones living expenses are, not counting the debt. Include
amounts you need to put aside each month to make quarterly or
annual payments, such as insurance and taxes, and a little cushion
for any expense you may have forgotten to write down. The difference
between what's coming in and what's going out is what you have
to pay your debts.
what you can pay to each lender.
each lender, explain your situation, apologize for the late
payments and state how much you can afford to pay each month.
Put all agreements, negotiations and offers in writing.
of your debt is with credit cards and departments stores and so
is unsecured, and you're batting zero in your attempts to deal with
those lenders, a visit to your local Consumer
Credit Counseling Services might help. There's no charge for
an initial consultation, so it doesn't hurt to talk to them.
is funded by credit card companies. In spite of that, a counselor
can help by getting the collection agencies off your back, and negotiating
repayment schedules that you can afford. It will show up on your
credit report if you enroll in a CCCS debt consolidation program.
However, if your credit rating has taken a beating then it wouldn't
you find yourself in a position where CCCS can't help and you will
never be able to clean up your bills, the last resort is bankruptcy.
For an overview of Chapter 7 and Chapter 11 bankruptcy rules, see
by the ease of credit."
without an emergency fund should set one up now. Without a fund,
the financial chaos can be devastating.
Can I get lenders to remove
charge-offs from my credit report?
When a lender gives up on collecting a debt, calling it a charge-off,
it stays on your credit report for seven years from the date of
last activity. Normally you can't get the lender to remove the charge-off,
however, there's no harm in asking.
What you really want to concentrate on is having the charge-off
reported as being paid in full, even if you negotiate a settlement,
says Ed Maietta, director of Counseling at Consumer Credit Counseling
Service in West Palm Beach, Fla.
If the account is with a
collection agency should I negotiate with them or the lender?
Negotiating with the collection agency is probably
better since the torch has been passed to it. If the collectors
have stopped calling you, it means they're not optimistic about
getting paid, and you're in a better position to negotiate a win-win
Here are some negotiating hints:
- Negotiate face-to-face rather than over
the phone, if possible.
- Make the appointment early in the morning.
- Set a goal -- closure before lunchtime.
- Talk to the person who can make the settlement
- Be polite and accommodating, but don't offer
any information on where you work or bank.
- Know what you can afford to pay, and don't
agree to more.
- Offer whatever you can, 40 cents or 50 cents
on the dollar. When the collector turns it down, ask what it's
going to take. Don't agree to an amount that is more than you
- Be prepared to hand deliver -- or send by
overnight mail -- a money order or a cashier's check as soon as
the settlement is reached
- Get everything you've agreed upon in writing
before you pay. If you're doing this via phone, have a fax number
ready, so they can send you a statement of what you've agreed
upon before you deliver the cashier's check or money order.