Credit Repair Kit
INTRODUCTION
Good credit is important in America today because so many of the things
that we want to buy must be financed or purchased on credit.
Once you have had a bad credit rating it is almost impossible to avoid
detection. A network of credit reporting agencies keep track of every
person who buys on credit. Each time that you apply for credit, the
prospective lender will check your credit with at least one of these
agencies.
There are approximately 2,000 credit bureaus in the United States. But
there are only a few large regional bureaus. The four top bureaus are
TRW, TransUnion, CSC, and CBI.
Many businesses pay to obtain the credit information that is contained
in your file. Subscribers believe that the information in your credit
file is a good indication of your “creditworthiness.” How you have paid
your creditors in the past is an indication of how you may act in the
future. They also use the credit file to verify information which is
listed on your credit application.
Usually the same potential creditors who receive information about you
also provide information to the credit bureaus. When you fill out an
application for one of these organizations, that information is then
sent to the credit bureaus, while constant updates on the status of your
account are sent to the bureaus to keep the data current.
Creditors who deal with the credit bureaus most often are commercial
banks, credit card companies, larger savings and loans, major department
stores, and finance companies.
The accounts which are usually not reported include the following:
utilities, hospitals, mortgages, credit unions, oil company credit
cards, and checking and savings account information. This means that
there is little chance of a bounced check history to be discovered.
YOUR LEGAL RIGHTS
What can you do if your credit report contains false, misleading, or
incomplete information?
The Fair Credit Reporting Act, 15 USC sections 1681 through 1681t
protects you against credit abuse which might result in an unfair
picture of your creditworthiness.
The following are your basic rights in communicating with the credit
bureaus:
You are allowed to change the accuracy of your credit report at any
time. The credit bureau must reinvestigate anything that you challenge.
The Federal Trade Commission says that the credit bureau must
reinvestigate in a reasonable amount of time, 30 days, unless there is
some reasonable explanation for a delay. If the credit bureau cannot
confirm the adverse information or finds an error, it must delete the
erroneous information from its files. If the bureau cannot or does not
confirm the information which you found to be in error within a
reasonable amount of time, the information must be deleted. If a
creditor verifies the information, and the bureau responds in a
reasonable amount of time, the negative remarks must remain on your
credit file. If you feel that the information is an error, you may issue
a Consumer Statement which gives your view of the problem.
REBUILDING YOUR CREDIT
If you are one of the millions of Americans who have had credit
problems, do not despair. Even with negative items in your credit file,
such as late payments, liens, or bankruptcies, there are some things
that you can do to rebuild your credit.
1. Develop a budget and stick to it -
You should create two lists, one of monthly income and the other of
monthly expenses. Compare the two lists. If you spend more than you
make, you should cut back until your income at least equals your
spending. Once you have developed a realistic budget, stick to that
budget.
If you need assistance in setting up a budget, contact Consumer Credit
Counseling Service at 1-800-388-2227. This service can also negotiate
with creditors to help you in setting up a debt-repayment plan. Another
local agency which may be of some help is the Lampo Group. This agency
is headed by Dave Ramsey, host of the Money Game on WWTN radio in
Nashville. He can be reached at 371-8881.
2. Make sure your credit file is accurate -
Credit files are maintained by three major credit bureaus - Equifax,
TransUnion, and TRW. You can request a copy of your credit report by
contacting one of these agencies.
Equifax 604 4th Avenue N. Nashville, TN 37219, 615-248-5850
TransUnion 51 Century Blvd. Nashville, TN 37214, 615-889-3938
TRW PO Box 2350 Chatsworth, CA 91313, 1-800-682-7654
When you receive your credit report, you should check it carefully for
any accounts which are not yours or any payments which may show up late
which were not actually late. Also, look for outdated information -
bankruptcies older than 10 years, and any other negative data older than
7 years should not be included.
There are four sections which you should examine carefully when you
receive your credit report. Those areas are as follows:
The Historical Status is a record of your monthly payments. Ideally,
this section should not have any past dues in any of the 30, 60, or 90
day periods. Some of these could have been entered accidentally, because
the mail was late, because of delays in processing your payments; or
because you have actually made the payments late.
The Comments section can contain things such as “charged to P&L (profit
and loss).” When a company charges an account to profit and loss, this
means that the account was charged off as a bad debt loss and that
company does not expect to collect the payment.
Inquiries are the third section of the report. This includes any
inquiries made by companies to which you have applied for credit. A
large amount of inquiries may indicate to a potential creditor that you
are in financial difficulty and are seeking credit as a quick solution.
Public Records can appear on your credit report as tax liens,
bankruptcies, or court judgments that you have had in the past.
To challenge incorrect or outdated information, write to each bureau and
request that the incorrect data be removed from your credit file. The
credit bureau should enclose a form for this specific purpose when they
send your credit report. There is also an example letter included in
this report. The bureau must contact each creditor that reported
information which you feel is incorrect. If the creditor does not verify
the information within 30 days, the credit bureau must remove that
information. If the creditor reports that the information is correct and
the bureau keeps this in your file, you have the right to issue a
Consumer Statement which explains your view of the dispute.
3. Negotiate with your creditors and gain their
cooperation -
Many of the negative remarks on your credit file cannot be removed
without some help from creditors. Some creditors are willing to remove
these remarks in exchange for full or partial payment of your account.
The following are some steps which can help you in having those negative
remarks removed from your report:
Set up a worksheet for each creditor -
A creditor worksheet should contain the names, account numbers, credit
remarks, and any correspondence you may have had with the creditor.
Write to each creditor -
You should write to each creditor to explain what the circumstances were
regarding your derogatory accounts. Be truthful, but appeal to the
creditor’s sense of goodwill. Also, remind the creditor that you
eventually paid the account and that you appreciated the services which
they offered. You should ask the creditor to either remove the negative
remarks or to write a statement that the account has been paid.
Order an updated credit report after 30 days -
You should allow about 30 days for the creditors to remove any negative
remarks or to change any information.
Send your statement to the credit bureau -
If the creditor does not improve the remarks on your credit file, you
should write to the credit bureau and add to your Consumer Statement in
accordance with 15 USC section 1681I of the Fair Credit Report Act.
Wait the appropriate time for a reply -
In a few weeks the bureau should reply an send you an updated copy of
your credit report.
Contact the creditor by telephone -
Calling the creditor will allow you to interact in a more personal way.
Before calling, study the information on your credit report, your
creditor’s responses, and the creditor worksheet which you created.
Write a simple outline of the points that you want to make before you
call.
Be persistent -
If the first call that you make to a creditor does not result in
success, call again. This time, speak to someone different who may be
able to relate to your specific problem. When the creditor agrees to
make a change on your credit file, ask them to please report this
correction to the credit bureaus.
Try again -
Try the creditor again in a few months. When a few months have gone by,
your situation may have changed or you may find a person who is more
willing to cooperate with you.
4. Add positive histories to your file -
If your credit file is missing data on accounts that you pay on time,
you should send the credit bureaus copies of your account statements and
copies of your canceled checks which show your payment history. Ask the
bureaus to add this information to your file. You can also bolster your
credit report by calling non-reporting creditors with whom you have a
good relationship. Let them know that you need their account information
listed on your credit report. You should follow this same procedure with
all of your good creditors.
When your creditors have agreed to give the bureaus this information,
you should have the credit bureau contact these creditors and add the
items to your report.
5. Add stability to your file -
Send the bureaus documentation which shows steady employment, a long
time at your residence, and information on your checking and savings
accounts.
When your creditors have agreed to give the bureaus this information,
you should have the credit bureau contact these creditors and add the
items to your report.
6. Avoid being discriminated against by
creditors -
Federal law prohibits creditors from refusing a person credit based upon
race, color, religion, national origin, sex, marital status, age, or
because the person has public assistance. If you feel that a creditor
may have discriminated against you, you can contact:
The Federal Trade Commission
Correspondence Branch
Washington, D.C. 20580
7. Get credit in your own name -
If you are married and your credit problems are due to your spouse, ask
the credit bureau for a credit file in only your name.
8. Credit cards -
If you still have a credit card despite your financial difficulties pay
the balance on time. This will help your credit history to improve
quickly. If you do not have a credit card, we strongly advise avoiding
the use of them. Many banks now offer debit cards as a fair alternative
to credit cards.
9. Work with local businesses -
Go to a local business, such as a jewelry store, and ask to purchase an
item on credit. A lot of stores will work with you in setting up an
account, but they might require a co-signer, a large down payment, or a
high interest rate.
10. Take out a passbook savings loan -
Open a passbook savings account with some of the money that you have
saved up, then ask the bank to give a loan against the money. You give
your passbook to the bank so there is not a risk. It is important that
you understand the terms of the loan and make sure that the bank reports
the loan to the credit bureaus.
Tax Liens and Your Credit Rating
A lien on your credit report will hurt your chances for significant
credit, such as a loan to buy a home, business, car, or any major
purchase. It can also prevent you from being eligible to obtain credit
cards.
The tax lien might not be erased from your credit report for up to 10
years. A past lien is not as damaging as a current lien. You must make
sure that every bureau updates your credit file to show that your
outstanding liens are paid.
Once you have paid your liens, the IRS must send you a Certificate of
Release of Federal Tax Lien (form 668Z). You must receive a certificate
for each office that has a lien on file. To make sure that you receive a
certificate for each of the liens, you will have to do a lien search.
The following are ways in which a lien search can be done:
Ask the IRS agent for copies of every lien the IRS has filed against
you.
Use a commercial lien search service to look through the public records.
These companies know where to look for liens. An agency to try is Docu-Search,
their number is 1-800-332-3034.
Review your credit report; this might disclose tax liens, but it might
also easily overlook those liens.
Conduct your own lien search.
After you have identified all the recorded liens, you should make sure
that the IRS files a Certificate of Release for each of the liens. Send
the credit bureaus copies of the Certificates of Release of Federal Tax
Liens. When you have given the IRS time to send this documentation, call
the credit bureau to request an updated copy of your credit report.
Bankruptcy and Your Credit Rating
Bankruptcy stays on your credit report for 10 years. While a bankruptcy
will damage your credit rating, it may be less damaging than many
negative marks on your credit report.
Credit usually eases within a year or two of filing bankruptcy if you
can show a consistent pattern of paying on time and some financial
stability. You should try to establish some form of credit from sources
which you can use as references. If these sources of credit do not
normally report to the credit bureaus, you may ask them to do so.
The reason for which you filed bankruptcy can be an important factor in
your credit file. You may have had a good credit history but fell victim
to a financial disaster, such as a business failing or a medical
problem.
If you have otherwise been a responsible bill-payer, you would like
prospective creditors to know the circumstances behind your bankruptcy.
You can do this by issuing a 100 word statement to each of the credit
bureaus so that they may make this part of your credit file. Your
statement should include:
The isolated factor which caused your bankruptcy
Your otherwise good credit history
That the financial problem has been erased and you are now financially
stable
You can possibly eradicate a bankruptcy mark on your credit report much
the same way that you do a tax lien. If you challenge a bankruptcy mark
on your credit report, the government must document the bankruptcy to
the credit bureau within 30 days.
GLOSSARY OF USEFUL TERMS
Adequate Protection
The standard of protection granted a creditor by the trustee or
debtor-in-possession to prevent the court from allowing the creditor to
foreclose on its property.
Automatic Stay
An injunction, or court order, that takes effect when a bankruptcy
petition is filed. An automatic stay prohibits all collection action
against a debtor.
Avoidance Powers
The powers used by a trustee to reverse transfers of the debtor’s
property.
Balance Sheet
A statement of financial conditions as of a specific date. It is
different from a cash flow statement, which summarizes income and
expenses.
Bankruptcy Code
The body of a federal statutory law that governs the bankruptcy process.
Bankruptcy Petition
The legal instrument filed with the bankruptcy court that commences a
bankruptcy proceeding.
Bar Date
The last date for filing a proof of claim.
Chapter 7
In a Chapter 7 proceeding, the debtor’s business is liquidated and its
assets are distributed to creditors with allowed proofs of claim.
Chapter 11
A Chapter 11 proceeding is a form of reorganization of debts. The debtor
continues to operate its business after the bankruptcy is filed. Chapter
11 liquidations are common and are usually the result of an unsuccessful
reorganization.
Chapter 11 Plan
In a Chapter 11 proceeding, the reorganization plan sets the rights of
all classes of creditors. It might also include various repayment
schedules which pertain to the various creditors.
Chapter 13
May only be filed by an individual debtor with limited debt. It allows a
payment plan for an individual’s financial and/or business debts.
Closing
When a bankruptcy case is closed, it is no longer on the court’s docket.
Collateral
Property of a debtor in which a creditor has a lien securing its debt.
Complaint
A pleading that is filed to initiate a lawsuit or an adversary
proceeding.
Composition
Out-of-court agreement to pay a percentage of a debt in full settlement.
Consumer Credit Counseling Services
Non-profit organizations established to help debtors make payment
arrangements with creditors.
Conversion
The conversion of a bankruptcy case from one chapter type to another.
Cram-Down
The confirmation of a plan to reorganize over the objection of a
creditor or class of creditors by the votes of other creditors.
Creditor
One to whom you owe money.
Debtor
One who owes debts. In bankruptcy, the bankrupt business that is under
the control and protection of the bankruptcy court is the debtor.
Debtor-in-Possession
The business debtor in a Chapter 11 reorganization. In a Chapter 11, the
debtor retaining possession of the asses involved in the bankruptcy.
Discharge
A discharge in bankruptcy relieves the debtor of the dischargeable debts
incurred prior to filing. Discharge is the legal term for the
elimination of debt through bankruptcy.
Dismissal
The dismissal of a bankruptcy case, for all intents and purposes,
returns the debtor to the same place it was before bankruptcy.
Examiner
An officer of the court sometimes appointed to investigate the financial
affairs of the debtor.
Foreclosure
A debt-collection procedure whereby property of the debtor is sold to
satisfy debts. Foreclosure often involves real estate of the debtor.
General, Unsecured Claim
A claim that is neither secured nor granted a priority by the Bankruptcy
Code.
Involuntary Bankruptcy Proceeding
In an involuntary bankruptcy proceeding the debtor is forced into
bankruptcy by creditors.
Jurisdiction
The power and authority of a court to issue binding orders after hearing
controversies.
Lien
An interest in property securing the repayment of a debt.
Motion
A request for the court to act. A motion may be filed within a lawsuit,
adversary proceeding, or bankruptcy case.
Personal Property - Moveable property
Property that is not attached to land.
Petition for Relief
The papers filed initiating a bankruptcy case.
Priority
Certain categories of claims are designated as priority claims by the
Bankruptcy Code, such as claims for lost wages or taxes. Each must be
paid in order of priority by claim.
Proof of Claim
The document filed in a bankruptcy case that establishes a creditor’s
claim for payment against the debtor.
Real Property
Immovable property such as land or buildings.
Secured Creditor
A creditor whose debt is secured by a lien on property of the debtor.
Secured Proof of Claim
A proof of claim for a debt that is secured by a lien, a judgment, or
other security interest.
Security Interest
A lien on the property in the possession of the debtor that acts as
security for the debt owed to the creditor.
Trustee
An officer of the court appointed to take custody of the assets of a
bankruptcy estate.
Unsecured Creditor
A creditor without security for its debt.
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