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Rebuilding Your Score After A Disaster

Friday, February 1, 2013 - 10:08 AM
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So what happens if you had to file for bankruptcy or have a lot of negative marks on your credit report?  Some people get discouraged after being turned down for credit or loans and just give up.  Other people who know how the credit system works can start building their credit back up.  How fast you can recover for your mistakes depends on you and what you do right away.  Understanding how the system works gives you the advantage of time.  When you’re given a fresh start, you can put the past behind you right away.  Credit scoring formulas are more concerned with what you’ve done recently than what has happened in the past, so its important to get started off right.  Rebuilding your score will still take some time, but if done right, you could significantly boost your score within a couple years.  If its been about seven years since your last negative mark (or up to ten years for a Chapter 7 bankruptcy), your credit score could be above average.


Part 1: Credit Report Repair

People who have had credit problems are sometimes afraid to look at their credit report knowing they won’t like what they will see.  You might find out that not every little problem was reported in the first place, or you could find that everything was.  It is important that you look at your report so that you know what you have to do to help clean it up.  For example, you could be the victim of a shady collection agency that has illegally “re-aged” a bad debt.  This is when they take an older bad debt and try to make it look more recent than it really is to the credit bureaus.  You should know that there are steps to help you clean up your report, and fight back against illegal tactics.

Check Your Report For Serious Errors – As mentioned, you should first get copies of your credit report from the three different agencies.  It is important to note that you should get three separate reports, not the 3-in-1 or tri-merged reports, which don’t contain all of the information you would get from the three separate reports.  Things that you should look for are:
  • Delinquencies that are older than seven years or accounts listed as delinquent that don’t include the date of delinquency
  • Bankruptcies that are older than 10 years or that aren’t listed by the specific chapter
  • Judgements or paid liens older than seven years, paid-ff debts listed as unpaid
  • Accounts that were wiped up by a bankruptcy filing still listed as “past due” instead of as “included in bankruptcy”
  • More than one collection account for the same debt
  • Collection accounts that don’t show the date that the original account went delinquent
  • Any accounts, delinquencies, collections, etc., that aren’t yours
When you do decide to dispute any errors with the agency, make sure you keep records of it in case you run into any problems.

Know Your Rights – The rights that you have under the Fair Credit Reporting Act are: 1) The right to have your dispute investigated, 2) The right to have erroneous information corrected, 3) The right to a written response, 4) The right to have a statement included in your file, 5) The right to sue.

Organize Your Attack – If you have found any errors on your report, you will want to gather any evidence you have to dispute them and notify the credit bureaus.  You should then follow up with the credit bureaus with a certified letter so that you get a return receipt.  This will make sure to get their attention that there is an error and any failure to act would be a violation of the Fair Credit Reporting Act and grounds for a lawsuit.  Usually the credit bureaus will make the corrections.  However, you should still monitor your credit reports to make sure the same error(s) doesn’t come up again in the future.  This is why it is important to keep records of everything, and could help you get it removed more quickly in the future.  If the credit bureau is still stating that there is no error, you could always try hiring a lawyer.  Sometimes a letter from them will be enough to get it fixed, otherwise there is always the option of a lawsuit.  If you need a referral for an attorney, the National Association of Consumer Advocates could always help you.

Unpaid Debts And Collections – When it comes to collections, another part of the Fair Debt Collection Practices Act is that you have the right to have a collection account “validated.”  This means that the collector must prove that the debt is your responsibility and that they have the right to collect it from you.  They also have to stop all collection activity until the provide evidence to you.  If they are unable to do this, they must cease active collections and stop reporting the debt to the credit bureaus.  It is important to note that this only applies to the collection agencies, not the original creditor.  To validate a debt, the collector needs to get documentation from the original creditor to prove that you do owe the money.  A lot of times, collectors don’t have the documentation needed, as some debts have been transferred from different agencies. This process could help get rid of any accounts that truly don’t belong to you or also get rid of some that actually do.

Statutes Of Limitations – Credit bureaus or only allowed a limited time to report negative information, 7 to 10 years.  The statute of limitations curbs the amount of time a creditor can sue you for a debt.  Statutes of limitations can vary by state and the type of debt involved.  Usually it depends on the state that you live in, but not always.  By making a payment on a bad debt, you can sometimes restart a previously expired statute of limitations in some states.  If you have a debt that is still within statute and a collector is not actively pursuing it, it may be best just to leave it alone and hope it goes off your credit report in a few years.  By looking into it, you could catch the collectors attention and could end up affecting your score.  If it is past statute, you would be ok looking into the bad debt in more detail.

Should You Pay Old Debts? – You legally owe a bad debt until its paid, settled, or erased in a bankruptcy.  Some people wrongly assume that they are no longer responsible when a creditor charges off the debt.  Charging off a debt is just an accounting term to account for it.  Even if the bad debt falls off your credit report after seven years, it is still your responsibility.  A creditor might not be able to report a debt, but they can still actively pursue it.

A Couple More Things To Remember – Although you might have good intentions on paying off a bad debt, sometimes it can actually hurt your score by making it look more recent, since credit formulas place more weight on recent items.  Sometimes just contacting an old creditor can leave you open to a lawsuit because some states have provisions that allow a statute of limitation to be extended if you make a payment or simply just acknowledge that you owe it.  If you ever cosigned a loan for someone else, any delinquencies, charge-offs, or collections for that loan will be reported on your credit report as well.


Part 2: Adding Positive Information To Your File

Try To Get Positive Accounts Reported – When you’re trying to rebuild your credit, it can be upsetting if one or more of your good accounts that you pay on time on  doesn’t show up in all of your reports.  Some creditors might not even bother to report to the credit bureaus.  Subprime lenders are guilty of doing this out of fear that if they do, their competitors will come in to try to take business away from them.  You can’t force a creditor to report, but it doesn’t hurt to ask.

Become An Authorized User Of A Credit Card – You are going to need someone with a good credit score and their permission.  By being added to someone else’s credit card account that has a good credit history can give your report a quick boost.  Also, if you are an authorized user (not joint) you’re not liable for any debt the account holder may run up.

Get Credit Or Charge Cards If You Don’t Have Any – You may be fearful of this idea if you are just recovering from bad debt, but you need to have a credit or charge card to start rebuilding your score.  You can apply for a secured card that has a limit equal to the deposit that you make. has a great section on secured cards.  Even though some financial experts warn against them, department store or gas cards may be the easiest unsecured cards to get after a credit disaster.

Get An Installment Loan – This could be a personal loan or a auto loan.  You might have higher rates than what you would like, but this is to be expected after a negative credit report.

Get A Cosigner – If you can’t get a loan by yourself, you may need someone to cosign a loan with you.  Just keep in mind that if you are unable to pay the loan, you are making the cosigner pay the price as well.


Part 3: Use Your Credit Well

This part is pretty straight forward without needing much explanation.  You should learn to pay your bills on time, use only the credit you have, keep your balances low, and don’t apply for for several lines of credit-especially in a short amount of time.
Giants91Giants914 posts since
Feb 1, 2013
Rep Points: 7