1. Get out your calendar
There is a federal act titled the Fair Credit Reporting Act (FCRA) that establishes for how long negative information stays on your credit report. Get out your calendar and write down these dates so you will know what to expect.
- • Late payments: 7 years from the date the payment was late
- • Collection accounts: 7.5 years from the date of delinquency on the original debt (leading up to collection)
- • Charge-offs: 7 years from the date charged off
- • Judgments: 7 years from the date entered by the court if paid, probably longer if you did not pay it
- • Repossession: 7 years from the date the repossession happened
- • Tax liens: 7 years after they are satisfied or paid off
- • Bankruptcy: 10 years from the date you filed for a chapter 7 bankruptcy. Seven years from the date of filing in the case of a chapter 13 bankruptcy)
2. Check out your credit report and credit score
You may not be aware of this but debts can be sold and resold over and over. You need to review your credit reports to make sure that the same debt is not appearing multiple times because it’s been reported by several different collection agencies. There are three credit reporting bureaus (Experian, Equifax and TransUnion) and you’ll need to get your reports from all of them. You could contact each of them separately or go to the website www.annualcreditreport.com and get all three simultaneously. They are free once a year. If you need to review them more often than this you will need to pay for them.
You can get your credit score free from the site www.CreditKarma.com. It won’t be your real FICO score but should be close enough for you to see how credit worthy you are. If you want your true FICO score you will need to go to the website www.Myfico.com and either sign up for a free trial of its Score Watch service or pay $19.95. This may be worth the time and investment because the overwhelming majority of lenders use this score to rate you and not the CreditKarma score that comes from Experian.
3. Don’t be scared of bargaining with debt collectors
If you’re being hounded by a debt collector, don’t be afraid of negotiating with him. Debt collection agencies usually buy debts for literally pennies on the dollar. This gives the collector of a lot of leeway in haggling with you. Your original debt might have been for $950 but with a little bargaining you might get it down to $300 or less. There are also some other things you should know about dealing with debt collectors and here’s a video that explains them.
4. Eliminate that tax lien
If you find a tax lien in your credit report, you can probably get it eliminated. All you need to do is contact the IRS and set up a payment plan.
5. Get new credit
Don’t be afraid to apply for new credit. While you don’t want to get into serious debt again, you need to rebuild your credit score and you can’t do that without credit. If you can show recent and positive credit information, this can make a big difference in your credit score.
6. Get a secured card
Secured cards are debit cards where you are required to deposit a certain amount of money to “secure” it. This is usually either $300 or $500. You can then charge against the card until you exhaust your balance. At that time you will need to load more money onto the card. How you use a secured card will be reported to the credit bureaus. If you use it wisely and sensibly, this will have a positive impact on your credit score.
7. Don’t max it out
Experts say that if it’s at all possible, don’t use much more than 10% or 25% of the balance on that secured card. If you had, say, an initial $500 balance on the card but had used up $400 of it, it would look as if you had maxed it out.
8. Learn how to dispute mistakes
When you analyze your credit reports it’s possible you will find mistakes that are having a negative impact on your credit score. If this is the case, you need to send the credit reporting bureau a letter disputing the item. While the three credit reporting bureaus have forms available online for disputing items, it’s much better to send the relevant bureau a letter. The three credit reporting bureaus don’t spread information among themselves so you will need to notify the appropriate one about the mistake and ask that it be removed from your credit report. You will need to have documentation supporting the dispute. If you do, it’s likely that the credit bureau will remove it from your credit report.
When you are able to establish new credit, be sure to make all of your payments on time. Just one late payment can cause your credit score to drop dramatically. The best way to make sure you are always on time is to set up your payments on auto pay or establish automatic payment reminders by email or on your computer’s calendar.