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Repairing Poor Credit

April 5, 2012

What is it?

Improving poor credit can be a long and arduous process. If you have struggled through a period of financial difficulty, or even filed for bankruptcy, your ability to obtain credit may be compromised long after you have gotten back on your feet. Luckily, the realities of a highly competitive market and an ever-changing economy have made most lenders less squeamish about making loans to a consumer with less than exemplary credit. Additionally, there are measures you can take to improve your credit file, such as refusing to get bogged down in shame or regret and getting to work instead.

How do you repair poor credit?
Correct errors

Obtain a copy of your credit report. Check it carefully for errors. Make certain that all the information contained in your credit report is correct. If it is not, make sure to correct the errors. Erroneous information only adds confusion, regardless of whether it is derogatory or not.
Add good credit information to your file

By adding positive account information to your credit report, you can mitigate the impact of derogatory credit. There is no law that requires creditors to report information to a credit bureau. Accordingly, you may have several good credit accounts that do not appear on your credit report. You can contact creditors with whom you have a good credit relationship, tell them a credit bureau will be contacting them, and give them permission to release your account information. Next, contact the credit bureau directly to provide the name and telephone numbers of your creditors. For a small fee (typically less than $5 per account), most credit bureaus will agree to call any creditor you specify and add their account information to your file.

Tip:  The credit bureaus are not required to perform this service. However, the Federal Trade Commission has encouraged them to do so, especially where a report has resulted in an adverse action against a consumer.

Example(s): Joey obtained a copy of his credit report after being denied a car loan. The report contained only derogatory information. Only two creditors had submitted account information, and Joey had been slow in paying both of them. Joey contacted the credit bureau. For a small fee, the credit bureau agreed to contact four other creditors with whom Joey had done business and paid as agreed. This positive account information was added to Joey’s report. Now, instead of having a credit report with nothing but poor credit information, Joey has a credit report with twice as much good information as poor.

In the preceding example, there is no guarantee that Joey will get the car loan, but his credit bureau report looks much better than it did before Joey’s action. Most importantly, his credit report now shows a more balanced and fair picture of his credit history.
Go directly to the creditor to clear your credit record

If your poor credit resulted from circumstances that were beyond your control, and you have reconciled your account since that time, then you may be able to convince your creditor to upgrade your rating out of a sense of customer loyalty. Plead your case to the creditor. If you were hospitalized, laid off, or subjected to other unforeseen losses, tell the creditor about your circumstances. Explain the hardships you have endured and remind the creditor that your account is now current. Out of sympathy or an interest in retaining you as a customer, the creditor may remove the derogatory information from your credit report or at least indicate that you have cleaned up the account.

If you have bad debts, you may be able to negotiate away poor credit by agreeing to pay your debts off over a period of time. Contact the creditor and propose a deal in which you will agree to a reasonable repayment schedule if the creditor agrees to upgrade your status with the credit bureau. If the creditor has charged-off your debt, or is likely to charge-off your debt, it may be willing to listen. Most creditors would rather get paid late than not at all. You may be able to work out a deal where you make periodic partial payments, and the creditor, consequently, makes periodic improvements in the information it provides to your credit bureau.

Caution:  Remember, most creditors are pretty unhappy with customers who have defaulted on their debts. Your creditor may not be interested in talking to you at first. The most difficult part will be getting someone to listen. Be persistent. If you don’t get the answer you want when talking to one customer service representative, politely ask to speak to a supervisor. Keep trying until you get someone’s attention, then get your agreement in writing.
Add a statement to your credit report describing your side of the story

You have a right to include a 100-word statement to your credit report to tell your side of the story. Write your credit bureau a letter and include your identifying information. Ask the bureau to include your 100-word consumer statement in your credit file. Mail your statement with the letter. Make it shorter than 100 words, if possible. The more concise the letter is, the better. State the facts. Perhaps you were hospitalized for a period of time and were unable to pay your bills. Perhaps your employer went bankrupt and you were suddenly left without a job. Perhaps the item you bought on credit was defective, but the merchant refused to replace or repair it. Perhaps the delinquent account has now been paid in full. If your credit history shows that you typically pay your bills, such a statement can explain away an isolated instance or period of derogatory credit.
Wait out your credit problems

With a few exceptions, derogatory credit information will be purged from your credit record within seven years. You can wait this period out, then start over. However, in most cases you shouldn’t have to wait that long to obtain new credit. The key is to avoid incurring any more derogatory credit. Every time you do, the seven-year clock gets reset and starts ticking again.

If you can show income stability and prompt payment patterns going forward, your situation will improve within one to three years. Even if you have filed for bankruptcy, you are likely to be offered charge cards and credit cards within a year or two if you have a steady income. If you can obtain a couple of charge cards, then you are on your way.

What about companies that guarantee they can fix your credit?

If your credit report contains errors, these credit-fixing companies can dispute those errors using the reinvestigation process provided for under the Fair Credit Reporting Act. However, many of these companies use the reinvestigation process to erroneously dispute derogatory credit that is correctly reported. They rely on the fact that most creditors don’t have the time or manpower to respond to every credit bureau reinvestigation request received. As the law now stands, if a creditor does not respond to a reinvestigation request, the disputed information must be removed from your credit report. The result is that a consumer can have correctly reported derogatory credit information removed from his or her credit report quite easily.

Typically, half of all disputed items are removed from a credit report every time a dispute is filed. There is no limit to the number of times you can dispute the same item of credit information. If the credit fixer follows up each dispute with another in 30 to 60 days, eventually all of the derogatory credit information in your credit report will be gone. The problem with this system is that it is dishonest. The credit fixer, acting as your agent, lies when he or she disputes derogatory credit information that is correctly reported. The next time you apply for credit, the creditor will be relying on a credit report that you, working through your agent, fraudulently altered through lies and misrepresentations.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

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