Repair Your Credit

Success story

As a mother of two young children, one of whom has special needs, Sharon Hays credits the Bluegrass Domestic Violence Program for helping her find the will to leave her abusive husband two years ago. The IDA program has helped Sharon go back to college. In addition, with the help of her one-on-one credit coach, Sharon was able to raise her credit score by 126 points.

Components of a credit score

Improving your credit score

•Just like losing weight, raising your credit score takes time and there is no quick fix

Payment history tips

•Pay your bills on time▫After 12 months this will be a good line of credit

•Get current and stay current on payments▫If you cannot pay on time, try to make

the minimum balance prior to the 30-days notice

•Contact your creditors or see a credit counselor

Amounts owed tips

•Keep balances low on credit cards and other “revolving credit”

•Pay off debt instead of moving it around•Don’t close unused credit cards •Don’t open several new credit cards that

you don’t need

Length of credit history tips•Don’t open a lot of new accounts too rapidly

▫New accounts lower your average account age

•Avoid closing a lot of old accounts▫Keep your oldest accounts open

• If you are a new credit user, rapid account buildup can look risky▫Avoid applying for credit to get a free T-shirt

or for a discount on an item you want to buy

New credit tips

•Do rate shopping for a given loan within a focused amount of time

•Open new accounts responsibly and pay them off in time

•Request and check your own credit report▫Order directly from the credit reporting

agency or an organization authorized to provide credit reports to consumers

Types of credit use

•Apply for and open new credit accounts only as needed

•Use credit cards and loans responsibly •Keep in mind that closed accounts will

still show up on your credit report•Understand how to read your credit card

statement

Fixing errors

•Check your credit report annually

•If you find errors on your credit report, take action ASAP

•Errors are potentially very damaging your credit score

Disputing your credit report

•You have the right to dispute information on your credit report.▫Can be done online or in writing

•An investigation will occur and you will receive a Result of Investigation Letter that explains the credit bureau findings.▫Could result in deletion of inaccurate

information

Common errors

•Is your personal identification information correct?

•Did something appear more than once?•Did someone look at your credit report

without your permission?•Is an inquiry shown on your report for

more than two years?•Is a bankruptcy listed more than 10 years

old?

Steps to correcting errors

•Copy your credit report•Highlight the error•Write a letter that explains the error•Copy additional information to support

your claim•Send all of the above to the credit bureau

Resolving debt on a credit report•Pay off in full•Arrange schedule•Offer settlement

amount for payment in full (approximately 40-75% for older debt)

Paying off in full• Send cashier’s check or certified money

order▫In the memo section write “for payment in full”

and the account number• Keep a record of the names/phone numbers

of people you speak with• Have creditor send you a letter stating the

account is paid off in full• Request a receipt that shows a zero balance• Send copies of receipt and letter to all three

credit bureaus▫Ask each bureau to update the accounts to

show paid in full

Arranging payment schedule

•Contact the company by phone or mail•Find out if they would accept monthly

payments•Keep records of the names/phone numbers

of people you speak with•Keep copies of payments you send in•After several months offer a settlement

amount as payment in full•Update bureaus when account is paid in

full

Offer a settlement amount

•Estimate 40-75% of debt

•Two options:▫Contact company by

telephone▫Contact company by

mail

Option 1: Contact by telephone•Before you call:

▫Have the money on hand to send immediately after negotiating a deal

▫Know your target amount you want to pay, offer less, and plan to negotiate

▫Do not agree to pay more than you can afford•Explain that you are interested in paying

account off•Negotiate a settlement and pay by date

agreed•Keep records

Option 2: Contact by mail•Send the company a letter with the

certified funds attached▫Write account number and paid in full in

the memo section•Letter should say you are sending the

amount as payment in full•Keep copy of certified funds and copy of

letter•Request a letter be sent stating account

was paid off •Send copies to all three bureaus

Obtaining help•Talk to your credit counselor

▫They can help you negotiate with creditors or set up a spending plan

•Learn more by visiting the following websites:▫Federal Trade Commission (www.ftc.gov)▫National Consumer Law Center (

www.NCLC.org)•Don’t be fooled by ads that claim they can

erase bad credit!▫If it sounds too good to be true, it probably is

Understanding bankruptcy

•Bankruptcy is a last resort▫Cannot clean up a bad credit record▫Stays on your credit report for up to 10

years▫Typically does not eliminate child support,

alimony, fines, past-due taxes, and some student loans

•Before considering bankruptcy, talk to your IDA Advocate

Types of bankruptcy• Chapter 7

▫ Wipes out all allowable debts and provides certain personal-property exemptions

▫ Debtor gives up all property unless the state finds that the debtor needs it to support his or her dependents

• Chapter 13▫ Court-approved

repayment plan▫ Debtor keeps all

property and makes regular payments on debt after filing for bankruptcy

Long-term effects of bankruptcy•Could determine whether or not you get

the job you want•Insurance rates may increase•May be difficult to rent an apartment or

qualify for a home loan•Bankruptcies stay on your report for 10

years

Alternatives to bankruptcy

•Before filing bankruptcy, try the following strategies:▫Reduce spending▫Negotiate a payment plan with your

creditors▫Work with your IDA Advocate to create a

debt repayment plan▫Talk to an attorney▫Consider debt consolidation-analyze risks

and consequences of this action first

References

•The Allstate Foundation.(2009). Moving Ahead Through Financial Management-Module Three.

•Redevelopment Opportunities for Women.(2008). Realizing Your Economic Action Plan.